Natural gas prices gapped lower today for the second week in a row with the spot May 15 contract trading down to a near 3-year price low.
Almost all the news is currently bearish including weather forecasts, high storage injections and production outweighing demand by an estimated 3 Bcf per day.
But there are variables which could swing the market back higher possibly over the upcoming 4-6 weeks of trade.
The first variable is summer weather which could turn out hotter than expected boosting demand of natural gas for cooling. With near and longer term forecasts currently negative for natural gas prices, any change in this outlook could quickly cause a reversal. Power generators have been heavy users of natural gas during the first 3 months of the year as lower priced natural gas has been displacing coal by utilities. This increased demand is helping to balance out the record high production of dry gas.
A second variable which could be bullish longer term is production. Two news stories today confirmed that shale fracking has been causing small earthquakes in the production areas of Texas and Oklahoma. If a government agency or the lawyers get involved in fracking, production could be affected. The falling rig count for both natural gas and crude oil will at some point also begin to lower production once legacy wells are retired possibly later this year.
The bearish triangle patterns initiated 4 weeks ago remain viable. The summer 15 strip which was nearly .450 above its downside measuring objective is now just .160 above the objective which is for trade down to the $2.400/MMBtu level.
Triangles appear at the end of a price trend. Current weakness is expected to be a seasonal and possibly long term low for the natural gas market.
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