The natural gas market popped back higher today following yesterday's 3.7% price break as a colder than normal end of winter put the brakes on recent selling.
The short-covering rally which began last week following a bearish EIA weekly storage report caught many shorts off guard. But as it typically the case with short-covering rallies, it was followed by an ensuing sell off on Friday which continued into Monday effectively erasing nearly all off last week's gains.
The market should remain weak as it enters the shoulder season between decreased winter heating demand for natural gas and no real cooling demand yet for summer power generation.
With current stocks ample and weather-related demand expected to drop, there is a very good chance for further weakness in the market before a post-winter low is set.
The triangle formations shown on previous posts for the summer 15 and winter 15-16 strips point toward another 10%+ price decline over upcoming weeks.
However, the natural gas rig count last Friday was report by Baker-Hughes at an all-time low of 217 rigs. At some point, likely later this year, production will be impacted. Crude oil production is also expected to fall during May for the first time in 4 years. Decreasing production and increased demand particularly by power generators could swing natural gas into a new bull market later this year.
The market likely won't bottom until summer cooling demand begins to lower weekly storage injections. Summer forecasts are currently neutral-bearish but could quickly change.
Bottom line - The near term trend for the natural gas market remains skewed to the downside but the longer term outlook for the prices into 2016 remains positive.
Current weakness could be a multi-year low for natural gas prices.
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