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Natural Gas: Inventory Slowly Moving Back to Normal

ByDimitris Kontoulis
Published 06/18/2023, 08:41 AM
Updated 07/09/2023, 06:32 AM
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Natural Gas Futures on the Nymex advanced 4.3% last week, closing at $2.62 on Friday. EIA reported a build of 84 Bcf in working underground stocks for the week ended June 9. Total inventory is currently at 2,634 Bcf, 26.5% higher y/y, 15.5% above the 5-year average. Both percentages have started to come down back to normal fast in the past few weeks.

We have been buying any dip coming our way in the past three months after identifying the seasonal floor. Support at the low $2.00s confirms our strategy on our way to $4.00 for the late August call options. Any profit margin must be well protected because of the range bound. Directional trading on the near-term charts has already given us more than 25% during the shoulder season. We remain confident that the coming dog days in the next couple of months will push demand even higher and the inventory gap back to normal. Price will soon breakout in uptrend. Will it last until the winter contracts? We will have to reevaluate in two months.

The U.S. economy is looking strong, despite the higher interest rates. Hedging activity on future contracts will come into play on higher volumes across the board. We will have to see first a real slowdown of the economy before re-starting the selling operations. That is not going to be the case until October. Europe and Asia will slowdown first. U.S. macro data and the Dollar Index must be monitored routinely. Daily, 4hour, 15min MACD and RSI are pointing to entry areas.

Nat Gas 4-H Chart

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