How is Natural Gas Reacting to Today’s Inventory Number?

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December 19, 2019 12:57pm NYSE:UNG

NYSE:UNG | News, Ratings, and Charts

  • The market expected around a 78 bcf decline in stocks
  • The EIA reports a drop of 107 bcf
  • The market yawns and the price stays near the recent lows

 The price action in the natural gas futures market continues to be bearish even though the official start of the winter season was on Saturday, December 21. After trading a new low of $2.158 per MMBtu on December 9, the price made it up to a peak of $2.377 on December 16. The move to the low on December 9, created another gap on the short-term chart.

An island reversal pattern is sitting above the natural gas futures market on the daily and weekly chart at $2.826 to $2.8290 and $2.738 and $2.753, respectively. On December 9, the price of January futures spiked lower from a low at $2.328 on December 6 to a high at $2.258 on the first trading session of the following week. The price action that followed filled that void on the chart. After erasing the gap, the price of natural gas futures ran out of upside steam. The United States Natural Gas Fund (UNG) is the ETF product that tracks the price of the energy commodity.

The market expected around a 78 bcf decline in stocks

According to the crowdsourcing platform, Estimize, market participants that offer estimates of the weekly data release from the Energy Information Administration on natural gas inventories expected a withdrawal of 78 billion cubic feet from storage around the United States.

Before the release of the data on December 19, the price was moving lower, reaching a bottom at $2.232 per MMBtu just three hours before the release of the data. The price was the lowest since December 10. On December 9, January NYMEX futures fell to a low at $2.158 per MMBtu.

 

The EIA reports a drop of 107 bcf

The EIA told markets that natural gas stockpiles fell by a more than expected 107 bcf for the week ending on December 13.

(Source: EIA)

As the chart shows, the latest withdrawal from storage took the total amount of natural gas stocks to 3.411 trillion cubic feet. At 22.1% above last year’s level, there is plenty of natural gas to meet requirements over the coming weeks and months. However, inventories remain 0.3% below the five-year average as of December 13.

The inventory report prevented a test of the December 9 low at $2.158 per MMBtu in the January futures contract, at least temporarily.  

(Source: EIA)

As the ten-minute chart illustrates, the price moved higher to $2.302 per MMBtu in the aftermath of the EIA report in a sign that some speculative shorts covered their risk positions on the back of the latest stockpile report.

 

The market yawns and the price stays near the recent lows

The ten-minute also shows that the price slipped after probing briefly above $2.30 as sellers seem to appear on any rally in the futures market.  

(Source: CQG)

The daily chart of January futures shows that the shorts remain in control of the natural gas market. Open interest has been flatlining at over the 1.31 million contract level since early December. Price momentum and relative strength indicators were both below neutral readings but are not in significantly oversold conditions. Daily historical volatility at just over 38% has declined from over 56% on December 12.

The natural gas market greeted the latest inventory data with little more than a yawn. The official start of the winter season comes in a couple of days. The sellers remain in control in natural gas, but the combustible commodity has a habit of surprising market participants when they least expect.

 


The United States Natural Gas Fund L.P. (UNG) was trading at $17.37 per share on Thursday afternoon, down $0.16 (-0.91%). Year-to-date, UNG has declined -25.51%, versus a 20.63% rise in the benchmark S&P 500 index during the same period.

UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #51 of 109 ETFs in the Commodity ETFs category.


About the Author: Andrew Hecht

andrew-hechtAndrew Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories. Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.


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