Friday, February 26, 2016
Weather forecasters are calling for more than half of the U.S. to experience above normal temperatures as we head into mid-March. The National Weather Service Climate Prediction Center is calling for the western half of the U.S. to experience above to well above normal temperatures from March 3 to Mar 9 in the recently releases 8 to 14 day forecast. The rest of the country is expected to experience more seasonal temperatures; with the exception of the Great Lakes and Ohio River Valley regions where below normal temperatures are expected.
Fundamentals
Natural Gas bears continue on the prowl following a bearish Energy Information Administration (EIA) gas storage report. The lead month April fell to a new contract low of 1.747 per 10,000 mmbtu on Thursday, as the EIA reported only 117 billion cubic feet (bcf) of Natural Gas was withdrawn from storage last week. Traders were looking for a draw closer to 136 bcf, which was still below the 5-year average of a 144 bcf draw. Gas prices have been reeling from a generally mild winter for most of the U.S. combined with more than ample production of Gas from shale formations, which has been a game changer for the Natural Gas market the past several years. During the week ending February 12, the Baker Hughes rig count shows the Natural Gas rig count fell by 2 to 102 which is the lowest Natural Gas rig count since Baker Hughes began recording in 1987. However, Gas storage levels are running nearly 29% above the 5-year average for this time of year and bullish traders are starting to fear that with spring weather fast approaching, Gas storage levels will be more than ample heading into summer.
Technical Notes
Looking at the daily chart for April Natural Gas futures, we note prices made a new contract low on Thursday, following the rather bearish EIA Gas storage report. Prices recovered from its lowest levels of the session following a price recovery in Crude Oil and the expiration of the March Natural Gas contract. The most recent Commitment of Traders report shows non-commercial traders are bearish on Natural Gas futures with an overall net-short position totaling 176,781 contracts as of February 16. The 14-day RSI has entered oversold levels with a current reading of 27.10. The combination of a large speculative short position with a RSI at oversold levels leaves ample room for a short-covering rally should Thursday's lows not be tested in the coming days. Thursday's low at 1.747 looks to be near-term support for the April futures, with resistance seen at the February 16 high of 2.033.
Mike Zarembski, Senior Commodity Analyst