Welcome to the weaker ahead edition of Natural Gas Daily!
The market has this weird tendency to overshoot both to the upside and downside. Back in June when the market worried about a potentially full natural gas storage by November, prices dropped to $1.5/MMBtu. And with those concerns now gone and EOS expected to be ~4 Tcf, prices have gone to $2.7/MMBtu.
Natural gas tends to be volatile and unpredictable in large part because fear and greed drive a large portion of the trading, but also because sudden weather changes can have large impacts on the incoming demand.
The fall in natural gas in the near-term was largely expected as cash prices weakened into the weekend last week with a further drop expected going forward as weather projections show much cooler than normal temperatures ahead.
As you can see in the 10-15 day outlook above, a colder than normal front is expected to hit the key demand region. This has TDDs falling below average, which will push storage build higher than normal.
The combined result is that cash price would further weaken into this weekend with more pullback expected for natural gas. With cash already hovering around $2.3/MMBtu, it’s hard to see a move higher in the next 2-weeks.
As a result, we have gone short UNG at $13.51. This bear flag breakdown combined with the TSI turning leads us to believe that the near-term downside for UNG is $12.50. This is the equivalent of a drop-down to $2.32 in October, which is also where cash is currently trading around.
For readers, we see more downward pressure for natural gas prices in the near-term.
HFI Research Natural Gas, #1 Natural Gas Service
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Disclosure: I am/we are short UNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.