Cold Blast Fails To Inspire Nat Gas Traders
Today’s Spotlight Market
Natural Gas futures were higher four of the past six trading sessions, as traders awaited today?s inventory report. The winter storm that hit the East Coast, dropping temperatures along with snowfall, is expected to have drawn down inventory levels. Traders are looking for a colder February to build upon this momentum, but can one month of weather driven demand really break Nat Gas prices out of their rut? Like the petroleum market, Natural Gas faces headwinds related to the more than ample inventory levels and demand that has been unable to keep up with production.
Fundamentals
Traders are expecting today?s inventory data from the EIA to show a drawdown of 206 billion cubic feet (bcf) for the week ended January 22. Last week, Nat Gas saw a draw of 178 bcf. While this can be viewed as potentially short-term bullish for prices in the near-term, total US inventory levels are an estimated 3.297 trillion cubic feet. This is 19.1% above the same period last year and 14.3% above the 5-year average for this timeframe. There has been talk of OPEC cooperation, which could reduce petroleum production and underpin prices. This scenario could offer some outside market support for Nat Gas. It does not, however, solve the supply woes for the Natural Gas market. The shale boom has been a major contributor to the production increase for Nat Gas over recent years. The major threat to a price recovery is the number of drilled but uncompleted (DUC) wells. These are wells that can quickly be phased into service at the slightest hint of a demand recovery. DUCs are a major cause for concern for the bull camp and may continue to weigh on prices for the foreseeable future.
Weather models seem to have turned a bit in favor of the bull camp. Traders were expecting above average temperatures for the month of February. Some weather models are now calling for colder temperatures for the eastern two-thirds of the country, while the west is expected to remain relatively warm. This may offer some moderate price support in the near-term.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see the March Natural Gas contract grinding higher over the past week after dropping sharply. The slow move higher after the steep drop could be viewed as a potential bear flag, suggesting there may be downside risk in the near-term. The recent bounce in prices above the 2.25 level looked promising, only to fall apart over the course of several trading sessions. It is interesting to note that the momentum indicator has been moving down during the slow grind higher. This may be a hint that the recent bounce could be a head fake.
——————————————————————————————————-
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the “Disclosure Statement for Futures and Options” prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply