A bearish change in the weather forecasts over the weekend calling for a milder end of month temperatures initiated the early selling. A Bentek production report also released this morning showed U.S. daily production in February reaching a new all-time high of 73 Bcf per day (dry-gas) which only added bearish fuel to an already weak market.
The spot March 16 contract remains .200+ above the spot contract low set in mid-December 2015 at the 1.684 level. This low is expected to be retested as support in upcoming trade and will be a key support level if reached. The summer 16 natural gas strip (April 16-October 16 contracts) fells to a new all-time low today at 2.122, but the winter 16-17 strip (November 16-March 17 contracts) held above its previous December low of 2.562 bottoming out today at 2.580. Outside of the winter strip not setting a new low today, the technical trend for the market at this point remains down.
Benign weather forecasts, record high production and end of March storage which is expected to be the second highest on record falling in the 2,100-2,200 Bcf range. Can the news get any more negative for natural gas prices?
Possibly, but weather forecasts could change providing a short term boost to the market. And production could begin to fall later this year as the rig count has dropped to the 102 level.
Time will tell how low prices may go on this current sell off. Seasonally, a low could be near but there will need to be some type of fundamental change in order to turn around the market trend.
At some point this market will be a raging buy. Patience at this point may be the best trade for now.
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