Natural Gas Forecast February 29, 2012, Technical Analysis

The natural gas markets fell again on Tuesday as the triangle that broke signals another run to the downside going forward. There are many reasons for the market to fall, not the least of which includes a simply glut of supply. The United States is sitting on roughly 14 trillion cubic feet of natural gas, and that doesn’t even include the massive amount in Canada as well. The oil drillers in the Gulf of Mexico will often burn off the natural gas byproduct that appears when they drill as it simply isn’t worth bothering with. In other words, natural gas isn’t exactly in demand, and demand rules everything in the end.

The new technologies that have come about in the last few years have simply flooded the market with cheap gas, and this should continue to be the case as technology will only increase the amount of gas that is recoverable over time. With this in mind, it could be a long time before the natural gas markets pick up.

The triangle that broke down on Monday was further confirmed on Tuesday as the price continued to fall, and now threatens the $2.50 level. The market is obviously one that you cannot buy at this point, and in fact is one you should always be asking “When can I sell it again?” The triangle that gave way measured a move down to the $2 level, and this is natural as the market likes to move from one big figure to another. The downward momentum should continue into the future and a move down to the level wouldn’t exactly be a surprise.

The market can be sold here quite frankly, as long as you are willing to set stop losses above the $2.80 level. The contract is one that has been very good to us, as we have sold rally after rally. While there is only one way to trade, there is always someone willing to buy. This should ensure sellable rallies in the future as well. Sell, sell, and sell some more.

Natural Gas Forecast February 29, 2012, Technical Analysis
Natural Gas Forecast February 29, 2012, Technical Analysis

Natural Gas Fundamental Analysis February 29, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Analysis and Recommendations:

Natural Gas continues to sink dropping to 2.53 after opening at 2.608. There has been no real reason for NG to soar up from the bottom, when it was sitting around 2.36. News that Chesapeake Energy was suspending production until it was more economically sound to produce started the market upswing. Weather has not been a factor and winter days are marching past. Gas should continue to fall until it finds a firm bottom. And will most likely sit there for some time…

 

Natural Gas Forecast February 28, 2012, Technical Analysis

The natural gas markets fell on Monday as the downtrend in this commodity looks to continue. The triangle that has been holding up the price of natural gas has broken, and we think that this signals the next leg down in this market. The width of the triangle measures 60 cents, and this has us gunning for a $2 target before the move fades overall. There is absolutely no reason to buy this contract at the moment, and we will only sell now. In fact, we are comfortable selling right now and holding onto this trade.

Natural Gas Forecast February 28, 2012, Technical Analysis
Natural Gas Forecast February 28, 2012, Technical Analysis

Natural Gas Fundamental Analysis February 28, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Analysis and Recommendations:

Natural Gas plummeted to 2.611 on profit taking, and warmer weather forecast. As March rolls in winter rolls out. Gas has been in the news a good deal lately, with announcements from Chesapeake Energy with their future growth predictions along with news of more use of natural gas in the future and environmentalist concerns in regards to the process used to capture the gas. Inventories this week showed a drop as expected. Weather has been holding and winter is coming to an end along with the possible higher demand for NG. Natural Gas should bottom out over the next month.

Weekly losses for natural gas, which has been beset by a mild winter in most of the key consuming U.S. areas and ever-growing production from shale gas, reached 5%

We should see Gas continue to decline until it finds the bottom to sit on, falling as low as 2.36 is possible.

 

Natural Gas Forecast February 27, 2012, Technical Analysis

The natural gas markets fell during the session on Friday as the traders in the pits continue to sell off this already weak market. Recently there has been a bit of firming in this commodity, but the triangle that has formed looks as if it could give way fairly soon. The trend is without a doubt down, so selling this market on a break below the bottom line of the triangle would be the easiest trade. A break of the top of the triangle has us waiting to see weak candles much higher, perhaps at $3 or $3.20 as those areas both should offer resistance. We will not buy this market under any circumstances at this point in time.

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

Natural Gas Forecast for the Week of February 27, 2012, Technical Analysis

The natural gas markets fell during the week, and have started to form a triangle between the $3 and $2.40 levels. The tightening of this market could suggest a possible surge coming up, and considering how bearish the market is overall, one would have to think the more likely of the two possibilities is selling. The market is completely overdone as far as capacity, and because of this, it is hard to make a case for buying. On a break of the bottom of the triangle, we suspect a move down to the $2 mark is in the cards. If we break higher instead, we will simply wait for weakness from which to sell. 

Natural Gas Forecast for the Week of February 27, 2012, Technical Analysis
Natural Gas Forecast for the Week of February 27, 2012, Technical Analysis

Natural Gas Weekly Fundamental Analysis February 27 – March 2, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Historical:

High      5.13 January 2011

Low      2.29 January 20, 2011

Rule: Natural gas is sometimes said to be the queen of all commodities, with Crude Oil being king. 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.

Trading natural gas is not for the faint hearted. Even by commodities standards, natural gas is a notoriously volatile market subject to wild price fluctuations.

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, 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 rise when an 84  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.

Analysis and Recommendation:

Natural Gas ended the week at 2.686 after hitting a high earlier in the week of 2.825. NG has been in the news a good deal lately, with announcements from Chesapeake Energy with their future growth predictions along with news of more use of natural gas in the future and environmentalist concerns in regards to the process used to capture the gas. Inventories this week showed a drop as expected. Weather has been holding and winter is coming to an end along with the possible higher demand for NG. Natural Gas should bottom out over the next month.

Working gas in storage was 2,595  as of Friday, February 17, 2012, according to EIA estimates. This represents a net decline of 166  from the previous week. Stocks were 753  higher than last year at this time and 744  above the 5-year average of 1,851 . In the East Region, stocks were 300  above the 5-year average following net withdrawals of 97 . Stocks in the Producing Region were 343  above the 5-year average of 650  after a net withdrawal of 58 . Stocks in the West Region were 102  above the 5-year average after a net drawdown of 11 . At 2,595 , total working gas is above the 5-year historical range.

Natural Gas Fundamental Analysis February 27, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Analysis and Recommendations:

Natural Gas is changing hands at 2.683 down 0.79 cents. As days of winter passes NG is beginning to seek a bottom. Recent news stories about the development of the NG industry and moves by Cheasapeake Energy drove the price upwards. Profit taking has also dropped the prices.

Natural Gas Forecast February 24, 2012, Technical Analysis

 

Natural gas markets had another fairly quiet day on Thursday as inventories remain high. The market is certainly looking a bit more stable than it had over the last year, and a triangle is now obvious on the chart. However, the triangle hasn’t been broken in either direction, and as long as that remains the case – we are flat in this market. The commodity could be starting to base a bit, but the reality is that the trend is most decidedly down, even with the recent action. Because of this, we are selling a break below the bottom of the triangle, or rallies that show signs of weakness going forward, with particular interest at the $3 level.

Natural Gas Forecast February 24, 2012, Technical Analysis
Natural Gas Forecast February 24, 2012, Technical Analysis

Natural Gas Fundamental Analysis February 24, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Analysis and Recommendations:

Natural Gas has dropped slightly trading at 2.757 off by 0.018.   NG turned lower after the weekly report on supplies in storage. The EIA reported a withdrawal of 166 billion cubic feet from the nation’s supplies of natural gas in the week ended Feb. 17. Analysts polled by Platt’s had expected the EIA to show a decline between 160 and 164 bcf in the week.

 

 

The Future of Natural Gas

The world is in the midst of a natural gas explosion. Even the International Energy Agency calls it a “golden age of gas”. If such optimism proves right, the implications would not only be far greater than those of the eurozone’s debt crisis, but would also be economically positive. Never forget that ours is a civilization built on cheap supplies of commercial energy. The economic rise of emerging countries is bound to make the demand for commercial energy increase dramatically in the decades ahead. Gas matters. The increase demand for natural gas could shift world economic powers, OPEC and oil producing nations would lose their stature. Natural Gas is found all over the world including a huge new find by Israel.

 The US Energy Information Administration states that “the use of horizontal drilling in conjunction with hydraulic fracturing has greatly expanded the ability of producers to produce natural gas from low permeability geologic formations, particularly shale formations.”

 While some innovations date to the 1970s, the EIA notes that “the advent of large-scale shale gas production did not occur until Mitchell Energy and Development Corporation experimented during the 1980s and 1990s to make deep shale gas production a commercial reality in the Barnett Shale in North-Central Texas.” But, by now, it adds, “the development of shale gas has become a ‘game changer’ for the US natural gas market.”

Today, Chesapeake Energy is a world leader in natural gas production and recently a huge expansion hoping to be a dominant player in all liquid and liquefied fuels by 2015.

The new activity has increased dry shale gas production in the US from 0.39tn cubic feet in 2000 to 4.8tn cubic feet in 2010, or 23 per cent of US dry gas production. Vastly more is to come. The EIA estimates 860tn cubic feet of “technically recoverable” US shale gas against just 273tn cubic feet in today’s “proved reserves”. If this estimate is correct, shale gas on its own would give the US 40 years of gas consumption, at current rates.

How large are the world’s shale gas reserves? The EIA asked consultants to examine 48 shale gas basins in 32 countries. Their report estimates “technically recoverable” global shale gas resources at 6,600tn cubic feet, roughly equal to today’s proved reserves.

The largest identified resources, apart from those of the US, are in China (1,275tn cubic feet), Argentina (774tn), Mexico (681tn) South Africa (485tn), Canada (388tn), Libya (290tn), Algeria (231tn), Brazil (226tn), Poland (187tn) and France (180tn). Regions excluded from this analysis include Russia, central Asia, the Middle East, south-east Asia and central Africa. Global potential should be far larger still.

 What difference might the abundance of natural gas (including of more conventional gas) make to the global energy future? In its World Energy Outlook 2011, the IEA remarks that “in all the scenarios examined… natural gas has a higher share of the global energy mix in 2035 than it does today”. Under its ‘golden age’ scenario, gas demand grows by 2 per cent a year between 2009 and 2035. Even under a more cautious scenario, which it calls “new policies”, demand grows at 1.7 per cent a year or by a total of 55 per cent over this period. As a result, gas substitutes for other fuels, particularly in electricity generation and heating.

 Gas also has substantial potential as a fuel for transportation. Overall, argues BP in its latest Energy Outlook, by 2030 gas might come to rival coal and oil as a primary energy source.

Natural Gas Forecast February 23, 2012, Technical Analysis

The natural gas markets went unchanged at the end of the session on Wednesday as the recent triangle continues to hold. The most recent run in this market has been a bit of stabilization, and as a result – we could see a pop in prices. The hammer from the session certainly would lend credence to this idea, and the triangle being there could foretell a move in either direction. With this in mind, we are waiting to see if the triangle gets broken to the downside, or if we rally. We sell the breakdown, and fade the rally – with a particular interest in selling weakness near the $3 mark. 

Natural Gas Forecast February 23, 2012, Technical Analysis
Natural Gas Forecast February 23, 2012, Technical Analysis

Natural Gas Fundamental Analysis February 23, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Analysis and Recommendations:

Natural Gas  is down from the opening of 2.788 and is trading at 2.759. With warmer weather predicted along with the days of winter ending, inventories are more than enough to see the cover demand. Today Chesapeake Energy Corp. said it plans to more than double its oil and liquids production by 2015 as the natural gas giant aims to become one of top five U.S. oil producers.

Chesapeake and other oil and gas companies are fleeing natural gas fields amid a supply glut that has brought prices to low levels not seen in years. Chesapeake said it plans to produce about 250,000 barrels a day of oil and natural gas liquids by 2015, up from about 104,000 barrels a day in the fourth quarter.

 

Natural Gas Forecast February 22, 2012, Technical Analysis

The natural gas markets fell during the session on Tuesday, but managed a bit of a bounce to form a hammer at the end of the session. The market looks set to continue consolidation, and the recently identified wedge pattern is still holding. The trend is down, so we certainly know that we want to sell this market, but the pattern still holds and keeps us flat.

The $3 level above should continue to be resistive going forward, so even on a break to the upside in this market we won’t buy. The trend has been far too bearish over the last year to argue with it, and as a result we truly hope for a break of the bottom of the wedge to sell. If not, we will sell the rallies as they come on signs of weakness going forward. With the spring coming in the United States, natural gas is about to hit its weakest traditional pricing period.

Natural Gas Forecast February 22, 2012, Technical Analysis
Natural Gas Forecast February 22, 2012, Technical Analysis

Natural Gas Fundamental Analysis February 22, 2012, Forecast

Economic Events: (GMT)

WEEKLY

 

Analysis and Recommendations:

Natural Gas is trading at 2.775 in today’s session as investors pulled profits after NG surged close to 20% in less then two weeks. Earlier in the day Natural Gas hit a high of 2.79, last week NG topped out at 2.81 after moving up from 2.36 earlier this month. Winter days are running short and warm weather is predicted. Gas was seeking a bottom when inventory reports last week showed it below forecast, non the less there is still no reason for NG to continue to climb.

Natural Gas Forecast February 21, 2012, Technical Analysis

The natural gas markets fell during the session on Monday as the bears reentered the markets. The market currently looks as if it is trying to form some kind of triangle or pennant, and as most consolidation patterns suggest continuation of the trend, we are watching this with great interest. The $3 level above should continue to be a “top” in the market, and as a result we only sell this commodity. A breakdown below the bottom of this triangle should be a massive sell signal, and any rallies going forward should be sold on weakness. We will not buy in a market that is so weak over the long term. 

Natural Gas Forecast February 21, 2012, Technical Analysis
Natural Gas Forecast February 21, 2012, Technical Analysis

Natural Gas Fundamental Analysis February 21, 2012, Forecast

Economic Events: (GMT)

WEEKLY

  • This Week in Petroleum
    Release Schedule: Wednesday @ 1:00 p.m. EST (schedule)
  • Weekly Petroleum Status Report
    Release Schedule: The wpsrsummary.pdf, overview.pdf, and Tables 1-14 in CSV and XLS formats, are released to the Web site after 10:30 a.m. (Eastern Time) on Wednesday. All other PDF and HTML files are released to the Web site after 1:00 p.m. (Eastern Time) on Wednesday. Appendix D is produced during the winter heating season, which extends from October through March of each year. For some weeks which include holidays, releases are delayed by one day. (schedule)
  • Heating Oil & Propane Update (October-March)
    Heating Oil, Propane Residential and Wholesale Price Data
    Release Schedule: Wednesday at 1:00 p.m. EST
  • Natural Gas Weekly Update
    Release Schedule: Thursday between 2:00 and 2:30 p.m. (Eastern Time)
  • Weekly Natural Gas Storage Report
    Release Schedule: Thursday at 10:30 (Eastern Time) (schedule)

 

Analysis and Recommendations:

Natural Gas is down a bit trading at 2.757 down from the opening of 2.807, where it skyrocketed to at the end of the week. Today’s decline is mostly profit taking after the incredible climb last week. Also news today, noted that problems brewing between Natural Gas producers and environmental groups. It made sense that environmentalists viewed the natural gas industry as an ally when they were trying to forge a climate deal on Capitol Hill in 2009 and 2010.

Environmental groups that once took money from Chesapeake Energy — or considered doing so — to make a common cause against coal power, have stepped back as they weigh the environmental perils of extracting natural gas from shale, a business in which Chesapeake Energy is a leader.

“When cap-and-trade was going through, they needed an alternative. . . . They saw it as the savior, and it’s anti-coal,” said in industry spokesman. But now, concerns about the chemicals used to tap shale gas have become more pressing as hydraulic fracturing activity has increased nationwide.

Natural Gas Weekly Fundamental Analysis February 20-24, 2012, Forecast

Economic Events: (GMT)

WEEKLY

                               

Historical:

High      5.13 January 2011

Low        2.29 January 20, 2011

Rule:

Natural gas is sometimes said to be the queen of all commodities, with Crude Oil being king. 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.

Trading natural gas is not for the faint hearted. Even by commodities standards, natural gas is a notoriously volatile market subject to wild price fluctuations.

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.

The average natural gas futures price for the upcoming winter is less than $4 per million British thermal units (MMBtu), the lowest level entering the winter since 2001-2002. The so-called “winter strip,” the average natural gas futures price for the contract months November through March as settled on the New York Mercantile Exchange (NYMEX), is a closely followed measure of market participants’ price expectations. In markets such as New England and California, where natural gas prices often set on-peak, wholesale power prices, the NYMEX winter strip for natural gas also can influence expectations for forward wholesale power prices.

Late October expectations for average winter natural gas prices have not been this low since the winter of 2001-2002. Winter price expectations, as reflected through the winter strip on NYMEX, peaked at almost $12 per MMBtu in 2005 in the aftermath of supply disruptions related to Hurricanes Katrina and Rita. Starting in 2009, late fall expectations for average winter natural gas futures prices dipped under $5 per MMBtu as domestic natural gas production from shale plays grew rapidly.

 Analysis and Recommendation:

Natural Gas is the outstanding mover of the week. For no express reason, except a drop in weekly inventory natural gas has climbed to 2.8320

Moving from a low of 2.36 a few weeks ago, natural gas has continued to surge. Weather is stable, inventories have fallen due to reduced production because of the low prices. Two weeks ago Chesapeake Energy announced the suspension of product due to high inventories, low demand and low prices.

 The EIA stated natural gas storage in the U.S. in the week ended February 10 fell by 127 billion cubic feet, after declining by 78 billion cubic feet in the preceding week. 

Inventories fell by 230 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 178 billion cubic feet, according to U.S. Energy Department data.

Natural Gas Forecast February 20, 2012, Technical Analysis

The natural gas markets had a very strong day on Friday as the support at $2.40 level continues to support the overall market. The market still remains under the $2.80 level though, and as a result we are hesitant to buy. Also, the $3 level looms fairly large above, and this is another potential trouble spot for the bulls. With this in mind, we like and prefer to trade with the overall trend, which is most decidedly down. The trend line that has been keeping this market down since November held for the day, so we also could see weakness here. With this line of thinking, we are selling rallies on the first sign of weakness at this point.

Natural Gas Forecast February 20, 2012, Technical Analysis
Natural Gas Forecast February 20, 2012, Technical Analysis

Natural Gas Forecast for the Week of February 20, 2012, Technical Analysis

Natural gas markets were positive for the week, gaining from the recent floor we have seen at the $2.40 level. The market is very weak over the longer-term, and the trend certainly hasn’t been changed by anything that has happen over the last week. However, there is a significant amount of support in this area, and as such we see it as a nice consolidation area.

Selling this market is the only position that a prudent trade can take at this point. The $3 level in our opinion is strong resistance waiting to happen. Because of this, we are willing to sell the market as we approach that area. The $2.80 level is also resistive, so for those that choose to be a bit more aggressive, you can use that as a guide. Buying isn’t even a thought at the moment.

Natural Gas Forecast for the Week of February 20, 2012, Technical Analysis
Natural Gas Forecast for the Week of February 20, 2012, Technical Analysis