?Warm? Weather Forecasts An Early Gift For Natural Gas Bears
Today’s Spotlight Market
Natural gas futures initially turned higher following a larger than anticipated draw from storage last week. The weekly Energy Information Administration (EIA) gas storage report showed that 51 billion cubic feet (bcf) of gas was removed from storage last week, which was 6 bcf above pre-report estimates of a 45 bcf draw. This leaves supplies at 3.359 trillion cubic feet (tcf) which is 9.5% below the 5-yr average for this time of year. Nearly the entire draw was in the eastern regions where supplies fell by 50 bcf. Producing regions added 7 bcf to inventories for the week ending December 5. However, the 8-14 day forecast calling for above normal temperatures for the main gas heating areas of the U.S. helped to cap gains.
Fundamentals
While the weather outside is anything but frightful here in Chicago for mid-December, Natural Gas futures have staged a minor rally of late, as short-covering buying has helped to propel prices higher. After falling to yearly lows earlier this week, the lead month January futures have rallied over 20 cents as a ?risk off? mentality entered the commodity markets this week, which caused traders to lighten positons across nearly every market sector. Large traders and funds are holding an exceptionally large net-short position in Natural Gas, especially as we are in the early stages of the winter heating season when the demand for gas for warming homes and businesses can cause gas storage levels to decline sharply. The most recent Commitment of Traders report shows large non-commercial traders holding a net-short position totaling 206,295 contracts as of December 2. This leaves the market vulnerable to short-term price rallies should weaker shorts start to cull positions. Commercial traders are mainly on the other side of the trade, with a net-long position totaling 164,287 contracts. The commercial position is mainly buying by power generators who are taking advantage a rare price low in December to hedge anticipated needs. Looking forward as we approach the end of the year, gas traders will turn their focus to increasing gas production from shale formations and a 8-14 day weather forecast calling for above to well above seasonal temperatures for nearly the entire U.S,. but especially for the upper-Midwest, where it appears that Santa will have ?moderate? winter temperatures in his bag for the folks in North Dakota, Minnesota, and Wisconsin.?????? ?
Technical Notes? -? View Today’s Chart
Looking at the daily chart for February Natural Gas futures, we notice that the recent price recovery off of 2014 lows has stalled, despite what was a relatively bullish weekly EIA gas storage report. Prices remain well below both the 20 and 200-day moving averages and the 14-day RSI, although weak, with a current reading of 39.46, remains above oversold price levels. With the trend solidly still in the bear camp, the market may be in a consolidation phase, but the potential for a test of new lows would not be out of the question. Support remains at the yearly low of 3.612, with resistance seen at 4.040.
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