Natural gas prices began a steep retreat on Monday as the market finished a two week rally higher from an 18-year low reached in early-March.
Short-covering due to changing end of month weather forecasts reversed the market although it is doubtful how long this strength may last. Seasonally, a post-winter rally was expected to form even though the overall fundamental picture remains very bearish.
In a special report released last weekend, price action in the natural gas market was shown during the summer following an El Nino winter. In all years following an El Nino winter during which a hurricane did not hit the Gulf of Mexico production area, the average price drop from the summer high to low was 34%.
Given record high storage and record high production, storage at the end of 2016 may reach a new all-time high for a second year in a row which should lead to new price lows later this year.
Near term, the weather will hopefully provide a continued boost to the market to more advantageous levels so that a bearish option position can be put in place.
Longer term, the expected upcoming weakness could be a multi-year price low for the natural gas market. Plan accordingly.
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