Natural Gas Prices: Bears Are In Full Control

| February 2, 2015 | 0 Comments

natural gasNatural Gas Prices: Set To Fall Further?

Without question, it has been a rough winter for natural gas bulls…

Despite a formidable US winter, the commodity has dropped 13% over the past month and a whopping 30% over the past three months. The recent downturn has natural gas trading at $2.65 mBtu- its lowest price since September 2012.

Why such weakness?

It’s simple. Even though it has been a relatively harsh winter in the Eastern and Central US, supplies of the commodity are abundant.

In fact, according to the most recent Energy Information Administration (EIA) natural gas inventory report, total US supply is sitting at 2,543 billion cubic feet (bcf). That’s 14% above last year and just 3% below the 5-year average.

With that information in mind, where do natural gas prices go from here?

Let’s find out…

Will Natural Gas Prices Test The 2012 Low?

Last week’s EIA inventory report was decidedly bearish. Energy analysts were expecting a storage draw of 107 to 110 bcf. Instead, inventories fell by a mere 94 bcf for the week ending January 23rd.

In other words, less natural gas came out of storage than expected- a bearish sign.

Investors reacted by pushing natural gas below technical support at $2.80 mmbtu last Thursday. A break below this important level opens the door for prices to test the $2.50 level- and possibly lower.

Take a look…

natgas020215

As you can see from this long-term chart, natural gas is dropping towards the $2.50 area (green line). If that technical support area doesn’t hold, there’s a growing possibility we see natural gas fall to the decade low set in 2012.

The only thing that can save natural gas bulls in the short term is a cold weather outlook…

Natural gas prices, NOAA weather forecast

As you can see, the National Oceanic and Atmospheric Administration (NOAA) is forecasting another cold spell for the Eastern and Central US in the next 6-10 days.

Given this forecast it’s likely natural gas will bounce off the $2.50 support area shown in the price chart above.

However, with the winter heating season getting long in the tooth, any rallies in natural gas should be sold.

Why?

The shoulder season is fast approaching. As you may know, the shoulder season is a term used to describe the low energy demand months in the Spring and Fall. According to the EIA, the Spring shoulder season typically runs from March to mid-June.

On a 20-year historical study, natural gas prices tend to fall in the January to March timeframe as investors factor in waning heating demand.

How To Capitalize On Falling Natural Gas Prices

One of the easiest ways to profit from falling natural gas prices is by shorting the US Natural Gas Fund (UNG). As you may know, UNG is a commodity ETF that tracks the price of natural gas.

If shorting isn’t for you, consider the Proshares UltraShort Bloomberg Natural Gas (KOLD) or the VelocityShares 3X Inverse Natural Gas (DGAZ). Both these ETFs trade inversely to natural gas. In other words, if natural gas prices fall, KOLD and DGAZ will rise. 

But it’s very important to note…

KOLD and DGAZ are leveraged ETFs, so they’ll move 2X and 3X that of natural gas on a single trading day, respectively. As a result, you’ll need to use caution when trading them.

Until Next Time,

Justin Bennett
Commodity Trading Research

Editor’s Note: If all this sounds like gibberish to you, be sure to check out my Beginner’s Guide To Natural Gas Trading!

BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

Tags: , ,

Category: Energy, Natural Gas

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Leave a Reply

Your email address will not be published.