Like crude oil, November Natural Gas appeared to be set up for a strong surge to the upside and finish for the week, but supply came in much larger than expected, forcing prices to close near their low of the week. The weak close now has this market in a position to test the early September low at 3.903. Because of the strong downside momentum into the close, expectations are for this bottom to be penetrated fairly easily.
With supply concerns continuing to bear down on the market, there would have to be a dramatic shift to turn this market around over the near-term. Although a pair of resistance lines was penetrated with authority early in the week, the close back below these angles is a clear demonstration of their strength.
Buy stops appear to be the main reasons for the surge, meaning that the market is still in the hands of strong shorts. Until they can be shaken out by a close over the angles at 3.906 and 3.977 this week, continue to look for more downside pressure and at best a consolidation.
Until the supply and demand picture changes dramatically expect downside pressure to remain firm with new shorts being added on rallies.
Factors Affecting Natural Gas This Week:
• Supply and Demand. Stockpiles rose more than expected last week. Expectations were for an increase of between 81 billion and 85 billion cubic feet, the actual number came in at 87 billion cubic feet. The good news is the figure was 1.6 percent below the five-year average and 4.3 percent lower than last year’s storage level. The question is “If this is a developing trend, then when will it show up in the prices.”
• Commitment of Traders. Until the CoT changes to show a shift from short positions to long positions by professional traders, expectations are for this market to remain under pressure.
• Number of Producing Rigs. It’s a long-term fundamental but slowly the number of producing rigs has been decreasing, however it has not been enough to underpin the market.
• Weather. The weather comes up as a key factor each week, but there doesn’t seem to be enough high temperatures in the country to warrant excessive demand, furthermore, hurricanes for the most part this season have not caused enough damage to fuel supply shortages.
By. FX Empire
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