Published On: Wed, Feb 22nd, 2017

Gas bulls run for cover as prices take a tumble



Prices of natural gas have been beating a fast retreat as mild weather in the US caused storage levels to decline far more slowly than market speculators had expected. This has been confirmed in a succession of EIA reports.

It is well known that natural gas consumption is seasonal; the surge in demand always occurring in the winter months of the Northern hemisphere. Therefore, the level held in storage accumulates over the course of the year. This is a measure that must be watched especially closely during the milder months of spring and autumn.

The winter of 2016 was the warmest on record in North America and this has led to a minimal draw down in inventories. 

 Source:, Spotlight Ideas

On this occasion the decline has suddenly taken on a new dimension that implies more downside as during the winter of 2016/17 it was expected that the market would be tighter than in the past.

This was because upstream production fell in 2016 following the past decade of ongoing growth. Under the Obama administration energy policy, the US coal industry had been virtually shuttered so feeding an uptick in natural gas consumption in the electric power sector. This was a pointer that led many to expect that natural gas demand was rising on a structural basis.

The chart above shows that the technical picture is not good and for that reason I am looking to be a medium-term seller of the April contract.

Natural Gas Five-Year Chart:

 Source: Spotlight Ideas

Management and risk:

Parameters:Natural Gas USD/Mm BTU (NGj7) April 2017

Entry: Sell 2.698 1423 GMT

Targets: 2.46 … 2.21 … 2.15

Stop: 3.10

Time horizon: Medium-Term

— Edited by Martin O’Rourke

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