Conflicting weather updates came in today, with most of the firms we follow now calling for an even warmer start to November. This has resulted in a bump up in injection figures through Nov. 4, and our EOS was also bumped up. Natural gas bulls and bears have to balance the temporary setbacks with expectations for this upcoming winter. Natural gas prices sold off a bit today on the back of this more bearish revision.
The interesting thing about this sell-off is that traders aren't too bearish. Most of them have now partial positions in place for this winter, and many are waiting for pullbacks to add to existing positions. Our current injection forecast of +77 for the week ended Oct. 14 is higher than the estimates we have seen so far. So if injections come in around our estimate, we could see more weakness in natural gas prices.
On a technical basis, we see support being found around $3.10/MMBtu. That would mark another higher low and continue the upward trend. Since the bottom in March, natural gas prices have risen steadily, and we expect to see $4 if winter turns out as forecast.
Balancing near-term bearish news flow with a bullish long-term outlook requires a bit of finesse. Instead of trying to time the market at every peak and trough, we have largely taken the approach of being long natural gas producers, which has paid off handsomely. We expect to see further share price improvements in many of the names we own, especially if our long-term storage forecasts pan out. We recently wrote to premium subscribers on why we are particularly bullish on Canadian natural gas producers, and cited several things that could see AECO materially outperform Henry Hub. We think the current fundamental backdrop sees Canadian natural gas producers benefiting much more than Marcellus gas producers.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.