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United States Natural Gas Fund, LP (UNG): Sharp Drop Of Inventories

|Includes: The United States Natural Gas ETF, LP (UNG)

Natural gas inventories released showed a sharp drop of 266Bcf. We are still 3.7% larger than last year's, which is also a sharp reduction in the oversupply.

Significantly colder-than-normal temperatures in the lower 48 States likely contributed to the above-average level of net withdrawals from working gas storage.

EIA projects that the spot price of natural gas at the Henry Hub will increase to an average of $5.36 per thousand cubic feet (Mcf) in 2010, which is $1.30 per Mcf more than the 2009 average of $4.06 per Mcf. The price is projected to continue increasing in 2011, averaging $6.12 per Mcf.

In the 60-minute chart, you can see that UNG is consolidating the steep up move developed last December. Note the big open gaps. Volatility is decreasing as Bollinger Bands converge. The Force Index Indicator is positive, as prices move sideways this could be choppy and not indicate the trend very efficiently. Support at 9.80$-10$.

In my charts, I used two indicators. The force Index indicator. I used the force index indicator, which is an indicator measuring the force of bulls during uptrends and the force of bears in downtrends. It takes into account price and volume. I applied a 13-day exponential moving average (NYSEMKT:EMA) of the force index to help track the trend. When the trend is positive, the color is blue; when the trend is negative, the color is red. You can see that the weekly trend has been up since last March. I applied also the %b indicator, which is derived from the Bollinger bands. It measures where the last price is in relation to the bands and it tells us where we are within the bands. %b in this time frame is near the overbought level.

My previous post:
United States Natural Gas Fund, LP (NYSEARCA:UNG) : Long Term Deals Negative For Price?
Producers of natural gas, such as Chesapeake Energy and Devon Energy, are willing to sign long-term contracts. This could anticipate a prolonged period of reduced prices.
Despite rises in natural gas prices this year, investors in UNG have seen returns eroded by contango in futures markets.
Due mainly to seasonal factors, but maybe influenced by the long term factors factors that could weigh on prices, the contango in natural gas futures markets has flipped. This could be good news for UNG because if prices remain stable or increase the fund will be able to roll its holdings at a profit.

Disclosure: no positions