Yesterday April Natgas rolled off the board closing with still another 10 year low, and the third official day of April bidweek wrapped up a weak trading session. Day-gas cash prices are in the dog house. It is EIA storage day, and a higher than expected build could be on the way. There is nothing about the natural gas market that looks bullish. Nevertheless, there has been no price collapse. In fact, natty has been range bound for weeks now. Do we know any more than we did two months ago? Let’s put the current situation in a historical perspective.
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Remember the good ole days, back in December 2011 and the first few days of January? Way back then, natural gas prices were above $3.00/MMbtu! It was January 10th when prices really headed south, hitting a low in the $2.20’s on January 23rd. At that point it certainly looked like the two-dollar barrier was ready to fall. But buyers arrived to save the day, and Natgas was back above $2.80 before the end of January. Futures prices fell again in early February, rallied mid-Feb, then dropped again at the end of Feb. In March prices fell in the first two weeks, then rallied up to the high $2.30s. That set the stage for the latest range-bound cycle.
Since March 19, it has been another slide to the downside. See the Updata ‘Candlestick-Volume’ chart for the CME/NYMEX April contract below, that shows upticks in blue, downticks in red, with the width of the bar proportional to the volume during that trading period. For this chart, the trading period is one hour. The graph indicates that most of the down moves have been accompanied by higher volume trading until a couple of days ago when the last financial traders were exiting the April contract. Higher volume is supposed to substantiate the validity of a price move. So this is more bearish news.
Yesterday at the end of the day the April contract dropped briefly to $2.16 before closing out at $2.191, down 1.7 cnts. May, now the prompt month contract was also lower – in this case down 1.2 cnts to $2.282. Based on the trading pattern over the past eight weeks it might be reasonable to conclude that the natural gas market is living on the fault line – and that fault line is $2.00.
Is the futures market being propped up by the cash market? I don’t think so. Yesterday the Henry Hub cash index on ICE came in at $2.0482, down 5 cnts. Ship channel was off 8 cnts to $1.95. TGP-Z4 Marcellus came in at $1.94 and poor ole NGPL-Midcon languished at $1.87. But those are day-ahead cash prices. What about bidweek numbers? Not much better. The ICE Ship Channel bid week index is off from $2.15 on Monday to $2.09 yesterday. Cheyenne Hub traded at $1.84. TCPL-Alberta-fixed at $1.67.
How about the technicals? No they are bearish too. Updata’s cloud chart signals a continued bearish trend, and its Point and Figure chart is calling for numbers to close south of $2.17. If that happens the next step on the way down is $2.105.
What could save the day this time? Well, today is EIA storage day. But that doesn’t look so good either. The Reuters poll average says the industry’s great thinkers are expecting a +45 Bcf build. Which gets us to 888 Bcf above the five year average for this week. (see EIA graph below) That’s just ridiculous.
But what does it mean if the number comes in a few Bcf higher than +45. Let’s say +56 Bcf (which happens to be the number this morning from John Sodergreen at Metro Desk). That could indicate that natural gas production is not tapering off as many have expected, or that gas for power generation is not picking up as much as expected. It seems like that ought to do it for gas prices north of $2.00. But since neither fundamentals or technicals has done such a great job anticipating price moves in this market, I think the best strategy in this market is to sit it out until something breaks this market out of its range. If the ‘trend is your friend’ you have no friends in this market. Trading this thing is clearly ‘livin on the fault line’.
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