Chilly economic conditions, not weather, keeping Natural Gas prices down.
Fundamentals
As I am writing today's Xpresso, I am looking outside and noticing that winter has definitely arrived early here in Chicago, as temperatures are hovering in the high single digits and snow is starting to fall. However, looking at my gas bill, it seems that the usual winter price surge is a bit delayed this season. Natural Gas prices continue to remain depressed, as curtailed industrial usage tied to continuing weak economic conditions has kept prices depressed, despite "bullish" weather forecasts. The National Weather Service is calling for below normal temperatures in the Midwest and Great Plains next week, which normally would lend some support to gas prices as heating demand increases. However, it appears that traders are more focused on the losses in industrial demand. In its December short-term energy outlook, the Energy Information Administration (EIA) is forecasting that industrial sector demand will fall by 2.4 percent in 2009, due to weak economic conditions. In the most recent EIA Natural Gas storage report, gas in storage fell by a less than expected 67 Bcf, to stand at 3,291 Bcf as of December 5th. This is 3.5% above the 5-year average. Large speculators continue to add to short positions, with the most recent Commitment of Traders report showing large non-commercial traders increasing their short position by a whopping 20,580 contracts as of the week ending 12-9-08. Though the current price outlook for Natural Gas prices looks bleak, we must remember the potentially volatile nature of this market. Should the demand outlook start to improve, short-covering by large specs could provide the fuel for a sharp bear market rally, especially with commercial hedgers unlikely to be sellers at least until prices move sharply higher.
Technicals
Looking at the daily chart for January Natural Gas, we notice the market once again in a consolidation phase, with prices trying to hold above the 5.450 level. Volume has begun to fall the past few sessions, as the lack of volatility is discouraging short-term trading. The 14-day RSI is also displaying a fairly large bullish divergence going back to the beginning of the commodity price collapse in late July, which may be signaling a bullish correction is near. Support remains at contract lows at 5.458, with resistance seen at the 20-day moving average near the 6.150 area.
Mike Zarembski, Senior Commodity Analyst
