Warm Weather Cools Off Natural Gas
??? Fundamentals
Warmer weather across much of the eastern half of the country has put pressure on Natural Gas futures in recent sessions. Natural Gas has been a victim of its own success, as the price recovery in October has resulted in ramped-up production. There were many forecasters predicting a colder than average winter, which likely contributed to the rise in prices. It now appears that these projections were far more optimistic than what has unfolded thus far.
Production is expected to rise by half a percent in 2013, according to the DOE. Considering the virtual Gold Rush occurring on the Marcellus Shale, the DOE projection likely can be seen as conservative.
There are around 1,000 untapped wells and a flood of investment in the region. The overseas LNG market is showing very strong demand, which may give prices some support. However, many US companies may fail to benefit from this strong demand if the DOE does not approve exports to countries that do not have a free trade agreement with the US, such as China, Japan, India and Germany.
??? Technical Notes
Turning to the chart, we see the February Natural Gas contract completing the measured move from the double-top formation confirmed last month. Prices have failed to hold the 3.25 support level, suggesting selling pressure may not yet subside.
There is minor support near 3.10, which the market has held so far. Prices could possibly break the $3 mark, which could accelerate selling action. Currently, the RSI remains just above oversold levels, suggesting the market may find some support in the near future.
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