Natural Gas Prices Rally Despite Ample Supplies
Today’s Spotlight Market
Small speculators appear to have the upper hand in the Natural Gas futures market of late, adding to existing long positions as the market rallies on the back of short-covering by large speculators. According to the most recent Commitment of traders report, non-reportable traders added a whopping 11,262 new net-long positions during the reporting period ending on June 14. This brings the small speculative position to a net-long 39,233. The non-commercials were still covering part of the overall net-short position, cutting the size by 2,400 contracts last week. Commercial market participants used the recent rally to reduce the overall net-long position by 13,661 contracts to stand at a net-long 112,947 contracts.
Fundamentals
Natural Gas prices are in the midst of an early summer rally, as weather forecasts calling for above average temperatures this summer in a large swath of the U.S. has triggered short-covering buying by large speculators.? While one does not normally associate a weather related price rally for Natural Gas with mid-to late June, we should note that power generation is among the largest uses for the fuel, and any increase in cooling demand can cut into the amount of Gas placed in storage during the summer months. The August futures have rallied over 80 cents since the March lows, although the upward price acceleration really did not begin until the end of May.? Ironically, although weekly Gas storage builds have been generally running below average recently, the total amount of Gas in storage remains ample, with just over 3.10 trillion cubic feet of Gas currently in storage, which is 28% above the 5-year average for this time of year.? In addition, a weekly report by Baker Hughes has the Natural Gas rig count increasing by 3 to 85 as of June 10, with Oil rigs increasing by the same amount. This could spell increasing supplies of both Gas and Oil in the coming weeks, which could help to offset any increases in demand. The Energy Information Administration (EIA) weekly Gas storage report showed 62 billion cubic feet (bcf) of Gas was placed in storage last week, which was just above analysts? estimates for a 58 bcf build. For comparison, 77 bcf of Gas was placed in storage this time last year. ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for August Natural Gas, we notice prices trading above both the 20- and 200-day moving averages (MA), and we recently have seen the 20-day MA cross above the 200-day MA, which is generally viewed as a bullish signal. The 14-day RSI has started to retreat from overbought levels above 70 but is still relatively strong, with a current reading of 62.65. The June 16 low at 2.605 is now seen as the next support level for the August contract, with resistance found at the recent high of 2.812.
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