US Nat Gas Sentiment is Changing, the bias looks Bullish

The US Nat Gas market is acting like a market that will not collapse like last winter.

The signs are signaling a market that is looking higher, not lower. The injection season has been a huge surprise this year with the majority of the weekly injections under performing both last year and the 5 yr average.

The surplus of Nat Gas in inventory peaked vs the same period last year and the 5 yr average in at the end of March when there was about 890 BCF more in inventory than the previous year and about 935 BCF more than the 5 yr average. Since peaking the surplus has steadily declined throughout the inventory building season.

The latest inventory report says the surplus declined by 651 BCF or 73% since peaking in the last week of March and 665 BCF or 71% vs the 5 yr average for the same period.

This is a significant turnaround and one many analysts did not foresee in Q-1 of Y 2012. The combo of an above average level of Coal to Nat Gas switching due to very low Nat Gas prices at the end of the Winter, a very early start to a very Hot Summer period resulting in an increase in Nat Gas for cooling related power generation demand plus a slow, steady reduction in the number drilling rigs deployed to the Nat Gas sector, rigs deployed to Nat Gas are now at a 13 yr low.
Nat Gas inventories will end the season at a new record high the level will be less than 2% above last year.

Baker-Hughes (NYSE:BHI) US Rig Count

US Rig Count: Baker Hughes reported that the number of Nat Gas rigs fell -15 units to 437 in the week ended 12 October. Oil rigs increased +13 units to 1 411 and miscellaneous rigs stayed unchanged at 2 units and the total number of rigs slid -2 units to 1 835. Directionally oriented combined Oil, Gas, and Miscellaneous rigs stayed at 194 units while horizontal rigs decreased -20 units to 1 112 and vertical rigs rose +18 units to 529 during the week.

With a normal Winter forecast and supply not on the rise it is likely that the price of Nat Gas will settle into a much higher trading range than last Winter and Spring.

That being the case I expect the futures market to trade in a wide range of about 3 to 3.20/mmbtu on the low side to even as high as 4 to 4.25/mmbtu on the high side if the Winter weather comes in as forecast.

The forecasted range for the Winter season is based on the current weather forecasts calling for an overall Winter season that will be about 20% colder than last year and only about 2% warmer than the 30 yr average, aka Normal.

Cash markets across the US firmed last week on a strong upside movement in the futures market. Nat Gas futures put in a strong performance last week after falling the previous week.

The Nov Nat Gas futures contract increased by 6.33% or $0.0215/mmbtu on the week and has now breached another Key technical resistance level with the next area of resistance around the 3.70/mmbtu level.

Along with a steady increase in both the cash and futures market last week the latest CFTC Commitment of Traders Report showed that the speculator community raised their net Long positions in the 4 major markets on Nymex and ICE by 13,119 contracts to a total net long position of 151,942 contracts.

The sentiment is biased to the Bullish side IMO.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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