Natural Gas Rallies Despite Winters End
???? Fundamentals
You would not know that winter is coming to a close by the reaction of the Natural Gas market, with lead month prices at highs not seen since November. A larger than expected draw from storage last week was the main catalyst for the price surge.
The Energy Information Administration (EIA) reported a gas storage draw of 145 billion cubic feet (bcf) last week, which was above the pre-report estimate of a draw of 137 bcf. Gas storage levels now total 1.938 trillion cubic feet (tcf), which is over 18% below last year’s totals.
However, we should mention that temperatures were running well above normal last winter, so higher gas usage for heating this season should be expected. When compared to the 5-year average for this time of year, we are still seeing gas storage levels over 11% higher.
Weather forecasts are calling for below normal temperatures through the end of March for the major gas heating regions of the Midwest, which is also adding to the market’s bullish tone. Natural Gas prices have been range-bound for most of the winter, which has seemed to encourage traders to utilize short option strategies that would benefit from prices remaining in a narrow trading range.
Thursday’s move to multi-week highs seems to have sparked some short-covering buying in the April Natural Gas calls, with good to heavy volume seen — especially in strike prices ranging from 3.600 up to 4.000, as these options strategists exit the market and await new opportunities come spring.
???? Technical Notes
Looking at the daily chart for April Natural Gas, we notice prices have been in an upward trend ever since a chart “gap” formed on February 25th. Since that time, we have seen a steady rise in prices that has sent the 14-day RSI surging, with a current reading of 71.09.
The market is extending its move above both the 20 and 200-day moving averages (MA), and we may see further technical buying emerge should the 20-day MA cross above the 200-day MA, which many technicians view as a bullish signal. There does appear to be some overhead resistance in the 3.825 to 3.900 price areas, with major resistance found at the November 23rd high of 3.997. Strong support is seen at the 200-day MA, currently near the 3.515 price area.
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