Natural Gas: Greater Underground Stock Surplus Likely Ahead

Natural Gas Futures on the Nymex had a volatile week before closing at $1.90 on Friday, 3.85% higher than a week ago.

A bounce has been highly anticipated and the market initially rallied during the week before finding resistance at $2.00. EIA confirmed on Thursday a rather average withdrawal of 151 Bcf in working underground stocks for a week ending February 14. We are looking at the continuation of the scenario we first talked about in mid-December.

Stocks might end up in an even bigger surplus before the beginning of the new injection season. Any rally is to be sold immediately on this typical post-winter downtrend.

The seasonality feature is decisive for pricing the U.S. Natural Gas because of its peak in winter domestic demand. However, the price has to range at some point and we might hit a floor maybe at $1.60 – $1.50 soon. These levels are unexplored really. I still want to be optimistic for the coming fall and consider the $2.20 or the $2.50 to work as a call level.

The industry will have to consolidate further, production will need to slowdown promptly at some point and this might offer support and show a certain floor for price shortly in the coming months. Rigs 40% fewer than a year ago, price already 32% lower y/y. March-May spread currently at $0.50. June contract currently at $2.00, September at $2.11. Weather remains milder than normal but U.S. macro figures support a better outlook. U.S. housing market really strong lately. We prefer selling rallies on near term charts at this time of year. The Dollar Index to be routinely monitored. Daily, 4hour, 15min MACD and RSI offering precision in our entry decisions.