The natural gas market traded down to yet another 2-year low in today's session but was saved late by a small rally into the session's close gaining nearly .020.
The fact the market couldn't maintain today's early strength as a 1-2 foot winter storm system hits the upper northeastern U.S. speaks volumes about the market. Production and lower than expected storage withdrawals are overshadowing weather-related demand in the
natural gas market.
With 8 weeks to go in the current withdrawal season, the market is likely facing two times the amount of gas in storage this year in relation to last. End of March storage for 2015 is expected to fall in the 1,500-1,600 Bcf range in comparison to 822 Bcf in storage at the end of March 2014 which was an 11-year low.
The biggest obstacle facing the natural gas market is additional production which could add 500-600 Bcf of gas onto the market this summer's injection season relative to last year.
Lower natural gas prices should encourage natural gas over coal for power generation this upcoming summer which could pull 2-4 Bcf of gas per day off the market this year helping to alleviate the overproduction problem.
Near term, the market should continue lower particularly if technical support which is a weekly low at 2.575 from August 2012 is broken which could lead to further selling. The market fell to a 2.571 low early this morning but there was no follow through selling.
The hedge funds continue to leave the market decreasing their net long futures position by 41% over the past two weeks. Last February when the market was trading above $6.000/MMBtu, the funds were long over 488,000 contracts. They are now almost completely out of the market with last week's Commitment of Trader's report showing the funds long only 74,974 contracts.
With natural gas prices showing little strength in today's session, the primary trend for the market remains down. As the old saying goes "the trend is your friend" and the trend is bearish.
If winter demand for heating doesn't increase, the spot market price could fall back toward the 2.200-2.250 level ahead during the next few months. This would be the opportunity to add to longer term coverage particularly for the upcoming summer 2015.
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