Selling in the market has abated at least temporarily as traders digest last week's sell off which dropped the spot contract price to a new 3-year low.
Market news for the most part remains quite negative including storage approaching a record high, benign weather forecasts, and an expectation for a U.S. production increase.
None of this news is new to the market. As the old saying goes, "A bull market must be fed everyday." The same can be said for a bear market and this one is getting a bit long in the tooth.
Storage will surpass the 4,000 Bcf mark for the first time ever over the next few weeks. That is a given. What could obviously change are the benign weather forecasts and possibly the assumption that U.S. production will rise.
U.S. production has been a gradual decline from the 74.3 Bcf high (dry-gas production) reached last December to a current estimate of 70.8 Bcf, down 4 weeks in row. The EIA and Bentek have both forecast that production will increase over upcoming weeks with October 15-March 16 production expected to reach a new high of 75.2 Bcf per day.
Production will be closely watch over upcoming weeks and may not rise as anticipated. The natural gas rig count reached a new all-time low of 189 in October and could be finally affecting production. Lower prices could also begin to further crimp credit-lines to the less efficient producers leading to further bankruptcies and lost production.
And finally, weather. As last seen during 2013-2014, an warm start to winter should not be extrapolated into a longer term bearish outlook. There a still many months of potential weather demand which could lead to a substantial upside reversal in market prices.
There is a very good chance last week's spike low under the 2.000 level was a long term low for the natural gas market. Bearish news at some point will be discounted and any change in the currently bearish outlook could quickly turn into a "bear trap" for the short position holders.
Thank you for everything you do in this blog Carl. I work as a natural gas marketer and I enjoy reading your thoughts and updates.
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