Morning Futures Roundup

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Bears in Control as Natural Gas Makes New Lows!

   Fundamentals
The bear market in Natural Gas futures is now well over 3 years old, as large supplies from shale formations and continued weak industrial demand have prices hovering near 2011 lows. Even the upcoming winter season has not helped Gas prices, as above-normal temperatures in the Midwest and Northeast have allowed Gas to continue to enter storage, even as December approaches.

Though current fundamentals look bleak for Natural Gas bulls, the long-term picture looks a bit brighter. With spot prices below the breakeven level for many producers, we may start to see gas rig counts decline, as producers shut down rigs due to unprofitable margins. Though US Gas prices are at a very low price level, this is not the case globally. In many countries, Gas prices are currently 2 to 5 times higher than that in the US. Unfortunately for US Gas producers, exporting Natural Gas is much more cumbersome than that of other energy products, such as Crude Oil.

Liquefied Natural Gas (LNG) is one way to export Natural Gas, but many more export terminals will need to be built first in order for US producers to be able to move excess Gas supplies to more profitable foreign markets. However, once these export terminals come on-line, we may see US. Gas prices rise, as prices will then be able to trade at closer to "global" levels, similar to how the Crude Oil markets are priced.

Domestically, the "cheap" price of Natural Gas may eventually contribute to a change in the US energy policy, as the political will be forced to finally embrace Natural Gas as viable alternative to Oil, especially as the US has already been called the "Saudi Arabia" of Natural Gas production.

   Technical Notes
Looking at the daily chart for January Natural Gas, we notice prices making several attempts to move below 3.460 without any luck so far. There appears to be a potential bullish divergence forming in the 14-day RSI, which if true, may signal that a near-term short-covering rally might be near. However, any rally attempt will run into some strong resistance at the 20-day moving average, which is currently just below the 3.780 area, and chart resistance seen near the 3.870 area. Should these price levels fail to hold, a move to the 4.100 to 4.150 area would not be out of the question. Support for January Natural Gas is found at Monday's low of 3.461.

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