Natural Gas Crossing Fingers For A Rally

Dec. 08, 2019 4:32 PM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, GAZ75 Comments5 Likes
Chuck Kowalski profile picture
Chuck Kowalski
306 Followers

Summary

  • Natural gas still struggles with a well supplied market.
  • A severe winter is probably the only factor to push the market higher.
  • Weather rallies are still meant to be sold.
  • A mild winter could push prices below $2.

Natural gas futures have been reeling from the first winter weather rally in early November. This market is fairly dependent on abnormal weather this winter to burn through excess supplies. Otherwise, natural gas prices will probably remain in the lower end of the $2 range. I wrote about this in my last article on natural gas and I have a feeling we will see another one or two of these weather scares this winter.

The rally in early November didn’t make it past the previous rally high at the 62% retracement. The weather forecast at the time was threatening abnormally cold weather and the market go overly optimistic. The weather turned out to be slightly less severe than expected and prices quickly reversed direction. Rallies to resistance in downtrends are meant to be sold.

The song remains the same for natural gas – more than ample supplies and not much to stimulate extra demand. There are weather scares every year for agriculture commodities and some of the energy commodities. Most of the rallies fizzle, especially if there is not a tight supply picture. Though, every once in a while, there is a major weather event that changes the supply dynamics. These events can sometimes change the trend and lead to multiyear rallies. However, the smart money will typically fade the regular weather rallies.

Prices are now around the $2.45 level, which is near a strong resistance level. I believe that natural gas prices should fundamentally be trading around the low $2 level. There isn’t much on the horizon that will change the fundamental picture. The economy is probably looking a little bit better than a couple months ago, but that doesn’t have much of an impact unless manufacturing gets rolling.

*December 5, 2019 Weekly Report

The market should struggle if prices reach the higher end of the $2 – $3 range. Supplies will continue to be more than ample unless we have a prolonged and abnormally cold winter. I would still look to sell any rallies into resistance levels and any minor weather scares.

Few people are talking about this, but the market could sink below $2 if the winter is warmer than normal. That is a real risk. I don’t see production curtailing anytime soon. It might take sub-$2 prices before that happens, as producers will burn off more of the gas instead of shipping it. That is a common practice, but it has also become an environmental issue and that could come to a halt. The bottom line, in my opinion, is that gas supply will continue to flow at this pace as long as we keep pumping out oil at our current pace.

This article was written by

Chuck Kowalski profile picture
306 Followers
Chuck Kowalski started his career in the futures markets in 1994 trading, advising clients, and educating traders. Today, Chuck is a branch manager for Foremost Trading. Chuck helps clients meet their goals in the futures markets with Managed Futures products and supporting individual traders with a high level of service. Early in his career, Chuck spent over seven years advising several hundred clients on futures trading as a broker. While trading on his own, he also consulted, over twenty years, for several startup technology companies. Chuck studied and/or traded nearly every US futures market; he both developed and used tailored strategies as well. In 1999, Chuck created FuturesBuzz.com to help educate traders and served as the exclusive Commodities Guide on About.com (now theBalance.com) for more than five years. Today, as an avid reader, Chuck keeps a large library of investment and trading books; as a prolific writer, he publishes analyses on the markets for many investment and futures websites. Chuck often considers the fundamentals in his research, but technical analysis is at the core of his trading strategies. Understanding the benefits and pitfalls of many of these technical trading strategies and algorithms guides his evaluation of CTAs. He believes that to best advise clients on the proper CTA or portfolio of CTAs, he must understand the CTAs trading methodologies and how they will fit within a client’s overall investment portfolio. With the knowledge and experience gained over the years, Chuck refined his approach to advising clients on their investment and trading needs. For traders, he helps create investment strategies based on the experience levels and their goals, knowing managing risk is imperative to success and growth. For those who do not wish to become active traders, but recognize the value of the futures markets, Chuck often recommends investing funds in Managed Futures. These accounts are managed by professional traders with established track records. Not every CTA is alike, thus each needs to be chosen wisely.
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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. I have no business relationship with any company whose stock is mentioned in this article.

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