Natural gas prices traded flat today during expiration of the June 15 contract following 5 days of heavy selling which erased roughly half the gains made over the previous 4 weeks.
Near term weather remains supportive but the longer range forecasts for June and July are not as they show large pockets of below-normal temperatures across the Midwest and Texas, both heavy users of natural gas for power generation.
Storage injections over the past 7 weeks have also been historically large totaling 528 Bcf, 42% higher than the 5-year average.
Production may begin to fall later this year but has so far remained unaffected by the sharp drop in the natural gas rig count which at 222 hovers just above an all-time low.
Weather is bearish, storage has been bearish and production is bearish. So why did natural gas prices rally higher by nearly 25% over the past month. That answer is short-covering and new speculative fund buying.
The conditions that exist today in the market were as bearish in late-April as the market fell to a near 4 year low. But when nearly everyone is expecting the same overcome (ie: lower prices), the results can be quite surprising as they have been in the natural gas market. What began as a short-covering rally with short position holders buying to offset positions soon turned into new speculative buying as investors poured money into the market as it rose attempting to play the summer weather rally which drove the market even higher.
But the market may have gotten ahead of itself as overall fundamentals remain bearish with little weather related demand evident as shown by the large storage injections.
The natural gas market may turn back higher near term if tomorrow's EIA storage report comes in lower than the 99 Bcf injection expected. But over the next few months. new price lows are likely to be set in the market.
No comments:
Post a Comment