Natural Gas Corner - Week In Review

It was another volatile and choppy week in the natural gas market as the spot October contract swung in a fairly wide .206 weekly range. 

The market rallied higher earlier in the week as weather forecasts had turned colder than expected moving the October contract back toward the lower-4.000 area.  Over the past 9 weeks, the 4.000-4.101 resistance area has held on four successive breakout attempts.

But as the week progressed, weather forecasts flip-flopped as new forecasts predicted above-normal temperatures across much of the U.S.  Moderating forecasts and another strong storage injection on Thursday drove prices back toward the lower end of the past 9 week range.

The October contract on Friday finished the week at nearly the same place in began settling at 3.837, down .013 for the 5 days of trade.

The weekly storage injection released Thursday by the EIA of 90 Bcf came in at the higher end of pre-report estimates and was another bearish factor for the market.  Storage injections since the second week of April have been record high surpassing the 5-year average injection each and every week.  If storage injections over the next 7 weeks remains large, end of October storage will likely fall in the 3,500-3,550 Bcf range which would still be 300-350 Bcf below record high levels reached over the past 2 years.

Longer term weather forecasts are mostly neutral-bearish with the one exception being the Old Farmer's Almanac which is predicting a "bitterly cold" winter.  They supposedly have a 80%+ accuracy rating for their longer range forecast.

The market may drop back to a new price low over the next few weeks if weather remains benign and injections large.  But the longer term picture for this market, at least into the early months of 2015, is bullish.

With storage heading into this winter lower than in past years, a normal or colder than normal winter could lead to price swings similar to winter 13-14 when the spot contract topped out at a 6.493 high in February.

Friday's Commitment of Trader's report showed fund long 185,092 contracts (futures only), up 948 from the previous week.  The funds were long 395,000+ contracts on the June high and rode the market all the way back down to a new 2014 low while liquidating above half the position. 

The current fund position at this time is neutral.  If 3.740-3.760 weekly low support is broken, the funds may be forced to further liquidate.  But if the market manages an upside breakout above lower-4.000 resistance, funds will likely pour money back into long positions attempting to play the seasonal rally higher.

Over the next few weeks, expected continued volatility and choppy trade as the market attempts to breakout from the 9 week sideways range.

Carl Neill