While the nearby October 15 natural gas contract has yet to fell to a new 2015 spot low, the back end of the forward price curve remains very weak.
The winter 15-16 (November 15-March 16 contracts) and the summer 16 (April 16-October 16 contracts) natural gas strips both traded to down new all-time lows today at the lower-2.800 level.
The natural gas market has finally broken out from the sideways trading range that has been in place since late April. This should be the final leg down in the market before a post-summer seasonal low is set. The question now is where the market may finally bottom?
The latest 6-10 and 8-14 day NWS forecasts remain hot and have been the primary supportive factors for the market since early-August. However, above-normal weather forecasts begin to turn less supportive as Fall begins and will become a bearish factor if they continue into early winter.
Focus is now on demand falling as the market enters into the post-summer shoulder season between summer cooling and winter heating demand. Some of the private forecasters are predicting a slow start to the winter heating season.
Current storage of 3,334 Bcf is nearly 4% above the 5-year average with 7 weeks to go in the injection season. Storage at the end of October should fall in the 3,850-3,950 range, not quite an all-time high but very close.
Production has moderated as the rig count has plummeted. Baker-Hughes last week estimated the U.S. rig count at 198, just 2 above the all-time low reached the previous week. Dry natural gas production was estimated by Bentek at 71.9 Bcf per day for week ended 09-16 which is down 2.4 Bcf per day from the record high reached last December.
Production could eventually be a bullish factor for natural gas but attention right now is on decreasing weather-related demand and increasing storage. Until winter-related demand arrives, the market could remain very weak in upcoming trade.
Technically, 2.440-2.450 is the next key support with longer term support at the 2.230-2.250 level basis the spot contract.
Once a final low is set, a seasonal rally back higher is expected. How high the rally may go will depend on winter storage withdrawals and the possibility for a further decline in production.
Current weakness could be an excellent opportunity add to coverage in the natural gas market ahead of the winter-heating season.
No comments:
Post a Comment