Natural Gas: Bounce Entirely Sold, Downtrend Continues

Natural Gas on the Nymex faced a negative week closing on Friday 10.5% lower than a week ago at $1.70.

EIA confirmed on Thursday a withdrawal of 143 Bcf in working underground stocks for the week ended February 21. This is one more average figure for this time of year. At the beginning of the withdrawal season stocks were 19% higher y/y and this figure now stands at 41% just a month away before the new injection season begins.

We are 9.1% above the five-year average nevertheless so we need to be careful as a price floor might be only a couple of months away. Bounces are always expected. Since mid-December, we have preferred selling rallies in near term charts and we still do, while respecting the almost traditional post-winter downtrend. Price had tough times even in the middle of winter in finding new highs after the seasonal uptrend.

Having said all this without mentioning the coronavirus effect all over the board and the potential dip in real demand is precisely because we once again, as we did in past analysis, want to point out the decisive importance of the domestic market for the U.S. Natural Gas producers. More than any potential new export agreements or any force majeure cancellations. The domestic demand absorbs 90% of total U.S. production. The market showed bearish signs early not because of external reasons. For the week ahead, we might have to wait for another selling opportunity a little higher on the first sign of exhaustion as the downtrend continues. This is due to the price moving close to the potential floor too quickly after the latest bounce has been entirely sold.

We cannot buy and hold the longer term before a break above the $2.30 which might not happen before next fall. We want to remain optimistic and I still believe this area will soon work as a call level following an appropriate consolidation of the whole market. U.S. macro figures and the US Dollar Index to be routinely monitored. Daily, 4hour, 15min MACD and RSI pointing entry areas.