It Is A Gas !

Fundamentals

It is tough being a Natural Gas bull these days, as prices continue to languish near the $3 per mmbtu level, despite that fact that we're in the heart of the winter heating season. With front month futures trading at 27-month lows, it is getting harder to find reasons for a rally. Above average temperatures in the Midwest and east coast regions of the US have hurt gas demand, with US inventories running nearly 12% above the 5-year average. This large gas surplus has allowed traders to largely ignore recent slowdowns in production, with the Baker Hughes rig count data showing 8 consecutive weeks of lower rig counts. Though it appears that lead month Natural Gas prices are destined to see a 2-dollar handle sooner rather than later, some weather forecasts are calling for colder temperatures to reach the east coast next week. This will keep traders focused on the 6 to 10-day outlook to see if the recent warm spell may be nearing an end. Many large speculative traders continue to expect lower Natural Gas prices, with the most recent Commitment of Traders report showing large non-commercial traders adding just over 2,600 new net-short positions for the week ending December 20th. This increased the net-short position to just over 161,000 contracts. Though this sounds like a huge net-short position, it is far from the record 297,972 net short positions that were held back in July of 2008 at the apex of the Gas bull market.

Technical Notes

Looking at the daily chart for February Natural Gas futures, we notice prices beginning to consolidate between 3.250 and 3.100, with current activity holding near the bottom on this price range. The 14-day RSI remains weak, holding just above oversold territory with a current reading of 30.49. Support is found at the contract low of 3.100 made on December 19th, with resistance seen at the 20-day moving average, currently near the 3.350 level.