Natural Gas Corner - Market Review - Bearish New Keeps Piling Up

Moderating weather forecasts, the possibility for another large storage injection tomorrow, U.S. storage nearing an all-time high, the news in the natural gas market continues to get decidedly bearish. 

However, as previously witnessed many times over past 4 months, when market expectations get lopsided such as they currently are, reversals can take place, if only for a short period of time.

Nothing looks bullish when a market is in a price decline such as natural gas.  That is what price declines do, they discount negative news to a point at which it is no longer a factor.  And then the market is ready for any bullish news to enter to finally reverse the trend back higher.

For natural gas, the bearish news may not yet be discounted as bulls were counting on above-normal forecasts to help limit storage injections.  But while weather remains hotter than normal, storage injections are increasing as the market enters into the post-summer shoulder season.  There doesn't yet seem to be that final capitulation that frequently occurs near a market low.

Early winter forecasts are largely benign in terms of demand for natural gas which if correct could keep the market weak into late-October/early-November.  But once winter demand does arrive, a  market rally back higher is expected the duration and price movement obviously dependent on winter heating demand and ensuing storage withdrawals. 

The early winter forecasts look timid but the longer dated forecasts for January/February point toward a colder end of winter which could provide a big boost to the market.  This year not as radical as the 2013-1014 winter rally during which the market topped out  at a 6.490 high in February.  But winter rallies are typically volatile and should be respected even with adequate storage already in place.

Another weekly production number will be released tomorrow by the EIA.  Last week's production estimate of 71.9 Bcf per day was down .8% from the previous week and 2.4% from the all-time production high reached in December 2014.  Production appears to be begrudgingly falling as producers are loathe to cut production regardless of price in order to keep the cash-stream flowing.  The recent drop in production is likely from bankruptcies and denied banking credit lines to some of the less efficient producers.  If production does continue to decline, it will eventually become a bullish factor and possibly be the catalyst which will reverse market prices back higher later this year.