Natural gas prices have cratered by nearly 10% from the highs set early-Monday as lower weather-related demand and high production have overshadowed colder forecasts.
The 6-10 day forecast remains normal or above for much of the upper U.S. but the 8-14 day forecast has turned markedly colder. The market's reaction to the colder forecasts so far has been limited.
There are a couple of factors to consider that could indicate a market low is near.
The first and most important factor is complacency which seems incredibly high and one-sided given that the heart of winter has yet to arrive. The "meat" of last winter's rally didn't hit until the middle weeks of January.
Last week's Commitment of Trader's report which shows how various market participants are positioned within a market had the hedge funds holding their lowest speculative long position in natural gas since last January as the market bottomed ahead of the winter rally. This again is a bullish contrarian indicator.
This week's storage withdrawal expected to be 59 Bcf according to recent surveys which will for a third week in a row fall well below the 5-year average withdrawal. The 2013 withdrawal for this upcoming report week was very high at 256 Bcf with the 5-year average being 157.
Yet natural gas market has not yet been able to push down to a new spot contract low which is 3.541 set in October in the face of overwhelmingly bearish news.
The canoe could very quickly tip back over to the other side. It is way too early to give up on a winter price rally in the natural gas market.
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