Natural Gas Forecast for the Week of May 7, 2012, Technical Analysis

The natural gas markets had a positive week for the last several sessions, and this was the move that a lot of the bulls in this market may have waited to see. However, when looking at the bigger picture in this market, you can see that the candle that has formed for the week is a bit of a shooting star. Considering the massive downtrend we are currently in, this is a very negative sign. As a result, we are selling on a break of the bottom of the week’s range as the trend looks to continue to the downside. 

Natural Gas Forecast for the Week of May 7, 2012, Technical Analysis
Natural Gas Forecast for the Week of May 7, 2012, Technical Analysis

Natural Gas Weekly Fundamental Analysis May 7 – 11, 2012, Forecast

Introduction: Natural gas is nevertheless a major commodity in its own right, which is used for everything from cooking food to heating houses during the winter. Natural Gas is growing much faster than either of its non-renewable fossil fuel competitors, oil and coal.

Do not miss the weekly U.S. gas inventories report. The figures are issued by the Energy Information Administration (EIA) every Thursday afternoon at 15:30 (released Friday at 15:30 if there was a U.S. bank holiday on Monday). Here’s a link to the latest EIA report. The main natural gas moving figure in there is the change in inventories from the previous week. When it comes to the gas inventories report, we’re talking about billions of cubic feet, Bcf for short.

When the actual change in inventories number is released, it is the deviation from the expected number that is really important. If the actual inventories figure shows a 24 Bcf rise when an 84 Bcf increase was expected, then that is actually positive for the price of natural gas. All else equal, the price of natural gas should rise after the release.

A barrel of oil has roughly 6 times the energy content of natural gas. If the fuels were perfect substitutes, oil prices would tend to be about 6 times natural gas prices. However, due to various market characteristics discussed briefly above and the ease of using oil, the price of oil has been following a pattern of 8-12 times that of natural gas. However that ratio has spiked dramatically since March 2009.

Weekly Analysis and Recommendation:

Natural Gas  ended the week at 2.265 after a recent report showed that many wells were being shut down or not developed at it was not economical to produce NG below 3.00

Highest: 2.384

Lowest: 2.151

Difference: 0.233

Average: 2.316

Change %: -1.72

A late winter storm has helped push the price over 2.00 to reach back up to the mid 2.20 levels, as investors are hoping for a decrease in inventory.

NG earlier rose by as much as 4.85% to trade at a session high of USD2.365 per million British thermal units. 
The June contract traded at USD2.320 prior to the release of the U.S. Energy Information Administration report. 

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended April 27 rose by 28 billion cubic feet, compared to expectations for an increase of 31 billion cubic feet.

Working gas in storage was 2,576 Bcf as of Friday, April 27, 2012, according to EIA estimates. This represents a net increase of 28 Bcf from the previous week. Stocks were 840 Bcf higher than last year at this time and 857 Bcf above the 5-year average of 1,719 Bcf. In the East Region, stocks were 425 Bcf above the 5-year average following net injections of 20 Bcf. Stocks in the Producing Region were 325 Bcf above the 5-year average of 715 Bcf after a net withdrawal of 1 Bcf. Stocks in the West Region were 107 Bcf above the 5-year average after a net addition of 9 Bcf. At 2,576 Bcf, total working gas is above the 5-year historical range.

Historical:

High      5.13 January 2011

Low       2.2080 March 13, 2012

 

Economic Events: (GMT)

WEEKLY

Economic Highlights of the coming week that affect the Euro, GBP, CHF and the USD

May 7

7:00

CHF

 

Foreign Currency Reserves

   

237.5B

7:15

CHF

 

CPI m/m

   

0.6%

May 10

8:30

GBP

 

Manufacturing Production m/m

   

-1.0%

11:00

GBP

 

Official Bank Rate

   

0.50%

12:30

USD

 

Trade Balance

   

-46.0B

12:30

USD

 

Unemployment Claims

   

365K

May 11

8:30

GBP

 

PPI Input m/m

   

1.9%

12:30

USD

 

PPI m/m

   

0.0%

13:55

USD

 

Prelim UoM Consumer Sentiment

   

76.4

 

 

Natural Gas Fundamental Analysis May 7, 2012, Forecast

Analysis and Recommendations:

Natural Gas is trading at 2.277 after a week of surprises, moving up from under the 2.00 price to climb back to the expected price of 2.36. Natural Gas is now looking for a bottom, to sit, it has exhausted its one last breath of winter.

Production is down due to the low cost, in order for a producer to make profit, NG has to sell in the 3.00 price range. It was estimated that in 2012 NG would price around 3.55. As many wells are shut down or production reduced, it will reduce supply, but the demand is too low at present to cause much of a market reaction. Perhaps as winter approaches. This might be a good time to look at buying longer term contracts as prices dip. We should see NG continue to price at the 2.25 range, below our earlier expectations of 2.27-2.30

Economic events for May4, 2012 actual v. forecast

 

 

GBP

 

 

 

Halifax House Price Index (MoM) 

-2.4%

 

-0.5% 

 

2.2% 

 

 

 

 

CHF

 

 

 

Retail Sales (YoY) 

4.2%

 

1.2% 

 

0.8% 

 

 

 

 

NOK

 

 

 

Norwegian Unemployment Rate 

3.20%

 

3.20% 

 

3.20% 

 

 

 

 

EUR

 

 

 

Retail Sales (MoM) 

0.3%

 

0.3% 

 

-0.2% 

   

 

 

USD

 

 

 

Average Hourly Earnings (MoM) 

0.0%

 

0.2% 

 

0.2% 

 

 

 

 

USD

 

 

 

Nonfarm Payrolls 

115K

 

170K 

 

154K 

   

 

 

USD

 

 

 

Unemployment Rate 

8.1%

 

8.2% 

 

8.2% 

 

 

 

 

USD

 

 

 

Average Weekly Hours 

34.5

 

34.5 

 

34.5 

 

 

 

 

USD

 

 

 

Private Nonfarm Payrolls 

130K

 

175K 

 

166K 

   

 

 

CAD

 

 

 

Ivey PMI 

52.7

 

61.0 

 

63.5 

   

 

Economic Events for May 7, 2012 for the European and US Markets

05:45   CHF                Unemployment Rate                                    3.1%                3.1%

The Unemployment Rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month.

07:15   CHF                CPI                                                                   0.2%                0.6%

The Consumer Price Index (CPI) measures the change in the price of goods and services from the perspective of the consumer. It is a key way to measure changes in purchasing trends and inflation.

10:00   EUR               German Factory Orders                                0.5%                0.3%

German Factory Orders measures the change in the total value of new purchase orders placed with manufacturers for both durable and non-durable goods. It is a leading indicator of production.

12:30   CAD               Building Permits                                                                    7.5%

Building Permits measures the change in the number of new building permits issued by the government. Building permits are a key indicator of demand in the housing market. 

WEEKLY

 

Natural Gas Monthly Fundamental Forecast May 2012

Outlook and Recommendation

Natural Gas ended April at 2.166

Highest: 2.333

Lowest: 1.903

Difference: 0.431

Average: 2.070

Change %: 8.40

Nymex natural gas prices slipped below $2 per mmbtu in mid-April (a decade low). While gas-targeted drilling has declined, a high level of development drilling of liquids-rich shale continues to boost associated gas production. Barring a hot summer, storage injection could surpass design capability.  However, a number of medium-term developments could eventually lift prices. Natural gas is currently nine times cheaper than crude oil — a development which should spur the use of compressed natural gas in public vehicles (buses), some corporate fleets and heavy trucks. In a reversal of trends a decade ago, the U.S. is expected to emerge as an exporter of LNG (mostly from the Gulf Coast). LNG export projects totaling 15.4 bcf/d have been proposed — from 5 Brownfield and 3 Greenfield terminals (21% of U.S. natural gas production of 72.49 bcf/d in January 2012 in the Lower-48 states). Of this, 12.5 bcf/d will require export licenses for shipments to Non-Free Trade Agreement countries. The U.S. Federal Energy Regulatory Commission has just granted a construction permit to Chenier Energy’s Sabine Pass project in Louisiana, with exports to begin in 2015/16.

Interestingly, this LNG may be shipped to South America, where high-priced diesel is sometimes used for power generation.  Alaska North Slope producers (Exxon Mobil, BP and Conoco Phillips) together with TransCanada PipeLines will also consider building an LNG liquefaction facility in Southern Alaska for shipments to Asia (3 bcf/d by 2020). However, this project faces competition from more advanced B.C. projects (including Kitimat LNG). The window to place new LNG projects in the Asia Pacific market may be prior to 2017/18, before competition heats up.

 Current natural gas prices around $2 are unsustainable over the medium term, as ‘dry’ natural gas plays from shale require $3 to yield a 9% return on capital over mid-cycle costs

Natural Gas Inventory (EIA)

The EIA released its most current storage inventory report earlier today showing, that natural gas storage in the U.S. in the week ended April 27 rose by 28 billion cubic feet, compared to expectations for an increase of 31 billion cubic feet.

Working gas in storage was 2,576 Bcf as of Friday, April 27, 2012, according to EIA estimates. This represents a net increase of 28 Bcf from the previous week. Stocks were 840 Bcf higher than last year at this time and 857 Bcf above the 5-year average of 1,719 Bcf. In the East Region, stocks were 425 Bcf above the 5-year average following net injections of 20 Bcf. Stocks in the Producing Region were 325 Bcf above the 5-year average of 715 Bcf after a net withdrawal of 1 Bcf. Stocks in the West Region were 107 Bcf above the 5-year average after a net addition of 9 Bcf. At 2,576 Bcf, total working gas is above the 5-year historical range.

 

WEEKLY

Natural Gas Forecast May 4, 2012, Technical Analysis

The natural gas markets rose during the Thursday session as the rally continued. The trigger for more selling for us was a break of the lows from Wednesday, and as it wasn’t triggered – we are still on the sidelines at this point. This chart is a great example of why waiting for the trigger to get activated is so important as a trader. Anyone that sold at the open got burnt today, even though in the end they will probably be right. With this in mind, we are still ready to sell this contract on signs of weakness going forward. We pay special note to the “20s” in this market as there is a long string of resistance areas at those numbers, including $2.80, $3.00, and $3.20.

 

Natural Gas Forecast May 4, 2012, Technical Analysis
Natural Gas Forecast May 4, 2012, Technical Analysis

Natural Gas Fundamental Analysis May 4, 2012, Forecast

Analysis and Recommendations:

Natural Gas continued to climb, trading at 2.361 up 0.107. The EIA released its most current storage inventory report earlier today showing, that natural gas storage in the U.S. in the week ended April 27 rose by 28 billion cubic feet, compared to expectations for an increase of 31 billion cubic feet.

Working gas in storage was 2,576 Bcf as of Friday, April 27, 2012, according to EIA estimates. This represents a net increase of 28 Bcf from the previous week. Stocks were 840 Bcf higher than last year at this time and 857 Bcf above the 5-year average of 1,719 Bcf. In the East Region, stocks were 425 Bcf above the 5-year average following net injections of 20 Bcf. Stocks in the Producing Region were 325 Bcf above the 5-year average of 715 Bcf after a net withdrawal of 1 Bcf. Stocks in the West Region were 107 Bcf above the 5-year average after a net addition of 9 Bcf. At 2,576 Bcf, total working gas is above the 5-year historical range.

Investors took this better than forecast report, as positive news pushing the commodity upwards to trade the highest this month.

WEEKLY

 

Natural Gas Forecast May 3, 2012, Technical Analysis

The natural gas markets fell hard on Wednesday as the bears came back into the markets. The ADP employment numbers came out light in the United States, and as a result the demand for natural gas could be subdued as companies aren’t hiring as much as people thought. This led to a lot of selling, and because of this we formed a pattern known as a double high, low close pair. This is simply when two candles have the same high, but the second one closes much lower than those highs. A break of the bottom of the candle from the second day suggests continuation of the move, and considering that the trend agrees – we are selling a break of the Wednesday lows.

Natural Gas Forecast May 3, 2012, Technical Analysis
Natural Gas Forecast May 3, 2012, Technical Analysis

Natural Gas Fundamental Analysis May 3, 2012, Forecast

Analysis and Recommendations:

Natural Gas  lost 4 cents, to $2.33 per million British thermal units. The contract on Tuesday rallied 3.8% on follow-through buying after a Monday report showed reduced production in the in the US. As prices rose profit taking began to take place. This is the bottom price that was predicted earlier as winter was ending. There was a lot of news and background noise affecting the price, more like bears talking the price down below the low of March pushing lower and lower.

Now that the last of the winter is over, officially and unofficially, Thursday’s inventory should give us a better idea where we stand for the next few months.

Crude Oil has been dropping all day, after inventory reports showed more than expected surplus. Today’s EIA inventory showed, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve)  increased by 2.8 million barrels from the previous week. At 375.9 million barrels, U.S. crude oil inventories are in the upper limit of the average range for this time of year. Total commercial petroleum inventories increased by 1.9 million barrels last week.

WEEKLY

 

Natural Gas Forecast May 2, 2012, Technical Analysis

The natural gas markets rose again on the Tuesday session as the short covering rally continued. The ISM numbers out of America suggested that the industrial base was picking up, and as a result natural gas should be consumed at a greater rate. However, to think that the natural gas markets are suddenly in a bull mode is a huge stretch. 

The pair looks to be coming up on a downtrend line, and as a result we think the weak candle that should come will be one to sell. In fact, we see the $2.40 and $2.60 levels as good places to look for weak price action to sell. Selling is the only way to go – we don’t buy.

Natural Gas Forecast May 2, 2012, Technical Analysis
Natural Gas Forecast May 2, 2012, Technical Analysis

Natural Gas Fundamental Analysis May 2, 2012, Forecast

Analysis and Recommendations:

Natural Gas is the talk of the town today, soaring up to trade at 2.331 well off the bottom of 1.92 last month. The continued cold in the northeast was a supporting factor as speculators are hoping that the late cold front used some of the excess capacity, reducing inventories in storage.

Also an industry report released today, showed that a major portion of new wells have been abandoned for the time being and that some of the existing wells have had production terminated as the cost of production is higher than the market costs. This does not affect current supply but could affect future availability. Many producers are hoping that the new programs initiated by Obama will help develop ways of shipping and exporting gas, while Chesapeake Energy has established  a new program to find new uses for natural gas to increase demand.

WEEKLY

 

Natural Gas Forecast May 1, 2012, Technical Analysis

Natural gas continued to climb on Monday as the short covering rally continued. However, this market has a definite downtrend to it, and the move is simply in our eyes a bounce from a massive fall. With this being said, there is still a downwards bias to the market and we will continue to trade it as such. We are going to wait for a weak candle at one of the “round numbers” such as $2.40, $2.60, etc. in order to sell. We will not be buying this market, and suggest that this will simply allow us to sell from higher prices. 

Natural Gas Forecast May 1, 2012, Technical Analysis
Natural Gas Forecast May 1, 2012, Technical Analysis

Natural Gas Fundamental Analysis May 1, 2012, Forecast

Analysis and Recommendations:

Natural Gas dipped a bit in early trading as investor took profits. Gas is currently trading at 2.166 down 0.021. The late season winter storm has now passed and demand for gas is falling once again. The price will be determined on Thursday when inventories are released. Markets are hoping that the unexpected late cold spell used up the excess inventory. 

 

 

WEEKLY

Natural Gas Forecast April 30, 2012, Technical Analysis

The natural gas markets rallied on Friday as the short covering rally continued. The market is extraordinarily weak at the moment, and as a result we don’t buy under any circumstances. The 50 day exponential moving average is just above, and the market has been respecting it for some time now. Because of that, we are willing to be patient and sell rallies as they come, on the first real signs of weakness. Yesterday’s hammer would have been a great sign to sell – but we simply didn’t get the breakdown needed in order to confirm it. We see both the $2.20 and $2.40 levels as likely candidates for selling opportunities.

Natural Gas Forecast April 30, 2012, Technical Analysis
Natural Gas Forecast April 30, 2012, Technical Analysis

Natural Gas Forecast for the Week of April 30, 2012, Technical Analysis

The natural gas markets rose during the previous week as the bounce from the $2 caused quite a bit of short covering. The market is without a doubt one of the most bearish ones we pay attention to, and as a result we don’t want to buy this market at all. The market has many levels above that could produce weakness, and as a result we are simply waiting to see a weak candle to sell from, perhaps from the daily charts. We believe that the $1 handle will be where the market settles in the near term.

Natural Gas Forecast for the Week of April 30, 2012, Technical Analysis
Natural Gas Forecast for the Week of April 30, 2012, Technical Analysis

Natural Gas Weekly Fundamental Analysis April 30 – May 4, 2012, Forecast

Introduction: Natural gas is nevertheless a major commodity in its own right, which is used for everything from cooking food to heating houses during the winter. Natural Gas is growing much faster than either of its non-renewable fossil fuel competitors, oil and coal.

Do not miss the weekly U.S. gas inventories report. The figures are issued by the Energy Information Administration (EIA) every Thursday afternoon at 15:30 (released Friday at 15:30 if there was a U.S. bank holiday on Monday). Here’s a link to the latest EIA report. The main natural gas moving figure in there is the change in inventories from the previous week. When it comes to the gas inventories report, we’re talking about billions of cubic feet, Bcf for short.

When the actual change in inventories number is released, it is the deviation from the expected number that is really important. If the actual inventories figure shows a 24 Bcf rise when an 84 Bcf increase was expected, then that is actually positive for the price of natural gas. All else equal, the price of natural gas should rise after the release.

A barrel of oil has roughly 6 times the energy content of natural gas. If the fuels were perfect substitutes, oil prices would tend to be about 6 times natural gas prices. However, due to various market characteristics discussed briefly above and the ease of using oil, the price of oil has been following a pattern of 8-12 times that of natural gas. However that ratio has spiked dramatically since March 2009.

Weekly Analysis and Recommendation:

Natural Gas traded between a low of 2.006 and a high of 2.293 and closed the week at 2.196 as a cold front continued to cover the northeast. The last hope for the use of season natural gas. President Obama’s administration is spearheading a new program to develop easy transportation and exportation methods of NG, to increase demand.

Date

Last

Open

High

Low

Change %

Apr 27, 2012

2.196

2.126

2.197

2.108

3.32%

Apr 26, 2012

2.125

2.184

2.293

2.123

-2.75%

Apr 25, 2012

2.185

2.076

2.199

2.061

5.28%

Apr 24, 2012

2.075

2.114

2.119

2.062

-1.77%

Apr 23, 2012

2.113

2.041

2.114

2.006

3.53%

The EIA supply report for this week indicated:

Working gas in storage was 2,548 Bcf as of Friday, April 20, 2012, according to EIA estimates. This represents a net increase of 47 Bcf from the previous week. Stocks were 872 Bcf higher than last year at this time and 908 Bcf above the 5-year average of 1,640 Bcf. In the East Region, stocks were 450 Bcf above the 5-year average following net injections of 42 Bcf. Stocks in the Producing Region were 350 Bcf above the 5-year average of 691 Bcf after a net injection of 1 Bcf. Stocks in the West Region were 107 Bcf above the 5-year average after a net addition of 4 Bcf. At 2,548 Bcf, total working gas is above the 5-year historical range.

Historical:

High      5.13 January 2011

Low       2.2080 March 13, 2012

 

WEEKLY

 

Natural Gas Fundamental Analysis April 30, 2012, Forecast

Analysis and Recommendations:

Natural Gas continues to climb, trading at 2.165 as the cold spell in the northeast continues and speculators are hoping that it holds out a few more days. Inventories this week were still high, but are coming in line. Yesterday the commodity fell as traders were able to take some profit before the close of the month.

There ain’t anymore hope for gas at this time, unless this cold front can turn into a blizzard.

 

Economic Events: (GMT)

WEEKLY

 

Natural Gas Forecast April 27, 2012, Technical Analysis

 

The natural gas markets started out the Thursday session in a very bullish tone as traders fueled a short covering rally. The $2.20 level was broken to the upside, and those who got in early certainly did well. However, as the inventory numbers came out in America, there was a much larger build than projected, and this slammed the markets.

The result was a beautiful shooting star at the $2.20 level, which of course is one of the areas that we have been talking about. It looks like we are about to get another chance to sell this market on a break of the Thursday lows. With this in mind, we are looking to do just that.

Natural Gas Forecast April 27, 2012, Technical Analysis
Natural Gas Forecast April 27, 2012, Technical Analysis

Natural Gas Fundamental Analysis April 27, 2012, Forecast

Analysis and Recommendations:

Natural Gas at this writing is up trading at 2.239 on estimates that the late winter storm would have used up the excess inventory.

The EIA supply report was just released showing:

Working gas in storage was 2,548 Bcf as of Friday, April 20, 2012, according to EIA estimates. This represents a net increase of 47 Bcf from the previous week. Stocks were 872 Bcf higher than last year at this time and 908 Bcf above the 5-year average of 1,640 Bcf. In the East Region, stocks were 450 Bcf above the 5-year average following net injections of 42 Bcf. Stocks in the Producing Region were 350 Bcf above the 5-year average of 691 Bcf after a net injection of 1 Bcf. Stocks in the West Region were 107 Bcf above the 5-year average after a net addition of 4 Bcf. At 2,548 Bcf, total working gas is above the 5-year historical range.

This should cause NG to begin dropping to the 2.00 price.

Economic Events: (GMT)

WEEKLY

 

Natural Gas Forecast April 26, 2012, Technical Analysis

 

The natural gas markets rose during the session on Wednesday as the commodity broke above the $2 level at the close. This was a very bullish sign, but in truth this market is far from rebounding at this point. The trend is most certainly down, and the next serious resistance is to be found at the $2.20 level. Because of this, we are very interested in selling in that area if we get any sign of weakness. As for buying, we simply won’t do it as the market is so weak overall. The rallies will be sold, and we still expect to see the $1 mark before it is all said and done.

Natural Gas Forecast April 26, 2012, Technical Analysis
Natural Gas Forecast April 26, 2012, Technical Analysis

Natural Gas Fundamental Analysis April 26, 2012, Forecast

Analysis and Recommendations:

Natural Gas climbed slightly to trade at 2.1002 as the cold front continues in the northeast, giving speculators one last chance at consumption. The markets are hoping that Thursday’s weekly inventory will show a drop in inventories.

 

 

WEEKLY