NATURAL GAS:
Futures Last Trade: July: 27June; Aug: 27July; Sep: 29Aug; Oct: 26Sep; Nov: 29Oct; Dec: 28Nov
Options last Trade: July: 26June; Aug: 26July; Sep: 28Aug; Oct: 25Sep; Nov: 26Oct; Dec: 27Nov
13June All of our technical remain under pressure and lower prices at the front end are indeed likely. That said, our Rate of Change is creeping back and the July contract is tipping back into Oversold conditions. However, at its current 24, we have seen much lower levels, approaching single digits through out the spring.
We feel the action sets up for a test of the recent lows (2.10 basis the July contract), then a more sustained move higher. Of course, the other side of this argument is that the recent action is signs of a failed rally. Last Thursday's decline on heavier Volume keeps the pressure on. Additionally, our Rate of Change indicator continues to bump along lower levels without sustaining any kind of real move to the upside.
We feel the bullish case is more compelling.
Fundamentally, production cuts are starting to bite. Additionally, because of low NatGas prices, we have seen numerous stories lately indicating businesses are switching to NatGas and away from coal and petroleum. These structural changes will change the supply and demand relationship and we can't count on next Winter being as mild as this last one. If we see a very hot summer, it is interesting to note that the marginal supply of electricity will likely come from gas turbines. This adds to the demand issue.
We feel the current sell-off is partly technical and partly a reaction to the European debt mess.
Previous support at 2.320 should now offer new resistance. Resistance is also seen at the recent lower high (2.48 on 06June) which aligns with 15May support. The next major level is 2.60, which was resistance on the way in early mid-May
We reiterate our previously stated reminder to our readers of significant changes in this market that have emerged:
1. The difference between current storage and historical has narrowed.
2. The announced production cuts have had a chance to gain traction.
3. News of structural changes in electricity production towards NatGas has been announced.
Seasonal Snapshot: All three patterns chop lower, then higher before starting a period of protracted weakness from 16June-22July.