Morning Futures Roundup

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Are Natural Gas Prices Finally Finding a Bottom?

 Fundamentals

After a nearly 2-year bear market, Natural Gas futures prices may finally be trying to put a bottom in place, as prices seem to be on the upswing -- although talk of a new bull market may be a bit premature. Since contract lows were made back in late October, February Natural Gas futures have rallied nearly 80 cents, as speculators covered short positions going into the peak demand winter heating season.

Colder than normal temperatures earlier this month have translated into above average draws of Gas from storage. In the most recent EIA Gas storage report, there was a draw of 89 billion cubic feet (bcf) of Gas from storage last week, well above last year's 55 bcf draw and above the 5-year average draw of 74 bcf. However, total Gas in storage stands at 3725 bcf, or nearly 10% above the 5-year average.

A look at the Commitment of Traders report may explain the recent rally, as large non-commercial traders have started to cover a small portion of their large net-short position. With U.S. Natural Gas production continuing to increase despite relatively low cash market prices, it may take a large increase in demand -- particularly industrial demand -- to actually put Natural Gas bulls back in the driver's seat.




 Technical Notes

Looking at the daily chart for February Natural Gas, we notice what may turn into a rounded bottom formation. This potentially bullish technical formation has gained some credence from the unsuccessful test of the contract lows of 3.894 on November 15th, when prices fell to 3.913 before fresh buyers entered the market. Since that time, prices have rallied and have now held above the 20-day moving average.

Although short-term momentum has turned positive, bulls would likely want to see a daily close above the 200-day moving average, currently near the 5.000 level, to re-gain control of the market for the first time since the middle of 2008. Support for February Natural Gas is seen at contract lows of 3.894, with resistance found at the December 9th highs of 4.635.


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