Natural Gas: A Few Spikes Away Before New Lows

Natural Gas futures on the NYMEX had a volatile week before closing 6.7% higher than a week ago at $2.70. EIA confrimed on Thursday a withdrawal of 130 Bcf in working underground stocks for the week ended January 1. Total inventory currently at 3,330 Bcf, still 4.3% higher than a year ago and 6.4% above the 5-year average. Both percentages are now flat right in the middle of the withdrawal season.

We have anticipated range-bound behavior and we remain vigilant for the fourth leg of this post-winter downtrend. We had expected strong support at $2.40 therefore any selling opportunity has to be taken only when a level around $2.60 will confirmly act as the next resistance on the way to lower lows. Selling rallies on exhaustion is what we have been doing for the past couple of months after we identified a seasonal ceiling for this market which is in need of buying volumes to overcome latest resistance. These might not be found before the end of the first quarter. We strongly believe price will touch $2.00 late in spring before reversing in an uptrend on its way back to $3.50 on seasonality, for the winter of 2022. In any case we do not want to become too greedy about this idea, we are operating on the near term charts while trading directionally.

Demand will look weak for another year and production is easily keeping pace servicing it, despite 38% fewer online rigs than a year ago, almost two months away before the new refill season begins. The abundance of U.S. Natural Gas and all of its technically recoverable reserves are shaping the fundamentals of this market since the 2016 lows. The price must remain competitive enough for the crucial market of gas-fired electricity generation. U.S. macro data and the Dollar Index to be routinely monitored. The recovery is slowing down considerably, which is further affecting the industrial and commercial demand for Natural Gas. The U.S. economy cut 140K jobs in December, the first decline in employment since the April 21M record. One in six Americans is now living below the poverty line. Daily, 4hour, 15min MACD and RSI pointing entry areas.