Weekly Natural Gas Outlook
Last week, December Natural Gas futures traded through the July 28 bottom at 3.877, putting the market in an extremely bearish position. Since there is still time before the start of the winter heating season, it looks as if this market still has work to do on the downside before becoming attractive enough for buyers.
As long as the product keeps coming into inventory and the cold weather stays away, the charts indicate that the market still has room to the downside. One target is the 2014 low at 3.0990. The next is last year’s fall bottom at 2.621.
Despite breaking through the summer low this week, there was no acceleration to the downside. This suggests that traders were prepared for the additional selling pressure and that there weren’t many long investors in the market to defend their positions or bailout on the weakness.
Because of seasonality, just about every speculator knows demand will come in once the weather experts issue their 90-day forecasts for the important heating areas. Until then, there is nothing to do but wait for bottoming action.
Those professionals who jumped the gun and went long early are probably adding to their established positions by entering on weakness and averaging down. Last week’s price action suggests fresh short-sellers are being tentative about selling weakness, but if prices continue to slide ever so slowly, there will come a time when they become more…
Weekly Natural Gas Outlook
Last week, December Natural Gas futures traded through the July 28 bottom at 3.877, putting the market in an extremely bearish position. Since there is still time before the start of the winter heating season, it looks as if this market still has work to do on the downside before becoming attractive enough for buyers.
As long as the product keeps coming into inventory and the cold weather stays away, the charts indicate that the market still has room to the downside. One target is the 2014 low at 3.0990. The next is last year’s fall bottom at 2.621.
Despite breaking through the summer low this week, there was no acceleration to the downside. This suggests that traders were prepared for the additional selling pressure and that there weren’t many long investors in the market to defend their positions or bailout on the weakness.
Because of seasonality, just about every speculator knows demand will come in once the weather experts issue their 90-day forecasts for the important heating areas. Until then, there is nothing to do but wait for bottoming action.
Those professionals who jumped the gun and went long early are probably adding to their established positions by entering on weakness and averaging down. Last week’s price action suggests fresh short-sellers are being tentative about selling weakness, but if prices continue to slide ever so slowly, there will come a time when they become more aggressive. This is when the acceleration will begin.
The bottom will be reached when the last small speculator gets short and the hedge and commodity funds begin to buy. And they prefer to enter the long side of the market only when there is a good story like a “Polar Vortex” behind the move.
With the latest weather forecast models calling for a mild winter, there doesn’t seem to be enough demand around to underpin prices. However, warmer-than-expected temperatures in the southern portion of the U.S. could mean a lengthier air conditioning season. Since warm temperatures seldom last this time of year, any rally produced by excess air conditioning usage is likely to be short-lived at this time of the year.
Gas prices fell sharply last week after the Energy Information Agency reported that U.S. natural gas stocks increased by 94 billion cubic feet for the week-ending October 10, compared to an expected increase of 91 billion cubic feet. This type of action is likely to continue as long as there are gas injections into the system, coupled with low demand.
Weekly Crude Oil Outlook
Crude oil futures prices tested the psychological $80.00 level last week. This may be good news for the consumer because it means another drop in gasoline prices which means they will have more money to spend on other things. The bad news is falling crude prices is not good for some foreign economies. Falling prices are also hurting energy stocks which is contributing to the rapid decline in the equity indices.
Even if crude oil prices hover around the $80.00 area over the short-term, the low prices are not expected to lead to a jump in demand. It will most likely mean that short-sellers are waiting for a decision from OPEC.
Contrary to what some bullish traders have been thinking, OPEC is not likely to cut production to support prices because most members especially its largest member Saudi Arabia is comfortable with prices around $80.00. Two weeks ago, the Saudi’s decided to cut prices to Asia rather than cut production. This is an indication that the country is not interested in doing anything to stop the drop in oil. This indicates that pressure will remain on prices.
Besides the Saudi’s, U.S. and Russian production is also hurting prices. Improvements in drilling techniques in the U.S. are helping to produce record amounts of crude. Russia’s dire need for cash because of the European sanctions is not going to stop this country from dumping oil onto the market. So setting aside technical factors which could trigger periodic short-covering rallies, it looks as if prices will drop into at least the end of the year.
Last week, the Energy Information Administration reported that oil stockpiles rose 8.9 million barrels in the week-ended October 10. This was far greater than the 2.2 million-barrel increase priced-in by traders. The American Petroleum Institute’s private report showed an increase of 10.2 million barrels. Traders reacted by taking prices lower.
Earlier in the week, crude oil prices took a hit after the International Energy Agency cut its forecast for oil-demand growth this year and in 2015. Its forecast called for 2014 oil-demand growth by 200,000 barrels a day to just 700,000 barrels a day, its weakest in five years.
The negative news seems to be piling up on crude oil at this time which may convince some contrarians to explore the long side of the market. This may be a short-lived opportunity since crude oil is not going to mount a discernable rally until the Saudi’s or OPEC decides to cut production.
