Natural Gas Week Ahead: Positive Momentum Kicks In Near Uncharted Lows

Natural gas futures on the Nymex had another volatile week closing on Friday 0.25% higher than a week ago at $1.85.

EIA confirmed on Thursday a withdrawal of 115 Bcf which is considered low for a week ending February 13. Working underground stocks were 19% higher Y/Y at the end of the passed injection season and most probably will end up in even bigger surplus before the new season begins in April.

Stocks are currently 32% higher than a year ago, 9.4% above the 5-year average at a time when more than 40% of rigs Y/Y remain offline and U.S. economy and households are in good shape.

Bearish fundamentals appear everlasting for this market as production is keeping pace with demand. Warmer winter temperatures than normal resulted in the lowest February prices in two decades during this ongoing post-winter downtrend.

Price is already 30% lower Y/Y and it looks like the $1.80 level is still offering support so we need to be careful. Anything below is, in reality, uncharted territory for producers and other market participants, in addition, this market showed several times in the past that it likes ranging. Any long investor will have to be patient.

For the coming months till the end of the year, I still want to consider the $2.20 or even the $2.50 level to work as a magnet for the winter season.

Until then we would prefer selling rallies on the first sign of exhaustion on directional trading on near term charts. March to April spread traditionally showing a floor for the coming summer where demand is only half of winter’s. Positive U.S. macro data and strong cold shots across the Northeast and Midwest encourage a short term bounce. Opportunity to sell will arise a little higher if not immediately. The US Dollar Index should be routinely monitored. Daily, 4hour, 15min MACD and RSI pointing entry areas.