There is not much to say about Natural Gas from a technical perspective. The weekly chart says everything. The main trend will change to up on the weekly chart when 2.984 are violated. Otherwise the market is destined to continue its series of lower-tops and lower-bottoms. It is possible that it will remain inside of the short-term 2.411 to 2.984 range. If this occurs, then the odds are the market will have run out of sellers and is getting ready to mount a strong short-covering rally.
Short traders may have covered positions ahead of the week-end on Friday, but that did nothing to change the poor weekly close. Mild winter weather and extremely high supplies continue to be the driving forces in this market. Temperatures are expected to be average-to-slightly-above average during the first two weeks in March, eliminating almost all hope that a late season cold spell will drive up demand.
Gas traders continue to focus on the short-side of the supply and demand equation. Last week's U.S. Energy Information Administration report showed that gas inventories fell by only 82 billion cubic feet. This was well below the pre-report estimates of 90 bcf and the five-year average decline for this week of 118 bcf. Prices dropped sharply from the news in what may be a sign that long speculators finally threw in the towel after trying to mount a rally over the past month.
Despite recent well shutdowns by several large producers, bottom-pickers couldn't garner any support to drive this market higher. The huge amount of gas in storage combined with low winter demand is likely to keep a lid on prices as short traders continue to dominate the trade. Market veterans expect traders to remain defensive until hot temperatures in the summer trigger a seasonal increase in demand.
Short-term demand appears to be steady, making storage the main concern for traders. Once again the onus appears to be on the producers. More production shutdowns are going to have to be made to cut the inflow of product. Until they can get a grasp on the situation, prices are expected to remain steady to lower.
Technically, a new upside breakout level has been created. The new main top dropped the breakout price from 4.338 to 2.984. This means that buy stops used by trend traders have been moved down to slightly above 2.984. The trend will change to up the first time through this level, but it make take several more weeks of consolidation to actually drive it higher from there.
Unless the fundamental and technical factors move in sync, there is virtually no chance for this market to begin a new bull market.
Factors Affecting Natural Gas This Week:
Weather: Mild temperatures continue to slow down demand. Temperatures are expected to begin rising as spring begins. This means that weather is not likely to be a factor until the summer when demand picks up again because of power plant usage.
Supply and Demand: Short-term demand has been steady but production remains too high. There has to be a drastic cut in production or the amount of gas in storage will continue to grow.
Chart Pattern: The trend is down on the weekly chart, but the good news is the upside breakout price has been lowered. This may give traders some hope that a bottom is near.
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