- The market expected a 52 bcf injection
- Natural gas breaks higher before the latest data
- The level to watch on the upside
Natural gas turned a blind eye to the crude oil market at the start of this week. On April 20, a day that will live in infamy in crude oil history, the price of the nearby NYMEX futures contract not only fell below the 1986 all-time low of $9.75 per barrel, but it also declined below zero. May futures fell to a low of an incredible negative $40.32 per barrel. On that very day, natural gas went the other way. Not only did the natural gas futures market rally, but it rose to a higher high for the first time since November 2019.
With debt-laden natural gas and oil producers in the United States teetering on the verge of bankruptcy, the only hope for many is a government bailout. Meanwhile, the gas and oil continue to flow into storage as the demand for energy commodities is a function of the self-induced coma in the US economy. The market had expected a 52 billion cubic feet injection into storage in the natural gas market for the week ending on April 17. The United States Natural Gas Fund (UNG) follows the price of the nearby futures contract on NYMEX higher and lower.
The market expected a 52 bcf injection
According to the Estimize.com site, the consensus estimate for this week’s natural gas injection data was running between 50-55 billion cubic feet before Thursday’s release.
As the chart illustrates, the Energy Information Administration report that stockpiles of natural gas in storage across the United States rose by 43 billion cubic feet for the week ending on April 17. Total stocks stood at 2.14 trillion cubic feet, 63% above last year’s level, and 20.5% over the five-year average for this time of the year.
Even though the inventory number has slightly below the market’s anticipated injection, the price of natural gas eased lower in the aftermath of the release.
The ten-minute chart of May NYMEX natural gas futures highlights the price traded in a range from $1.895 to $1.933 at the time of the data release. However, the price slipped in the aftermath of the EIA data and was around the $1.87 per MMBtu level later in Thursday’s trading session.
The price action in the natural gas futures arena had been bullish earlier in the week.
Natural gas breaks higher before the latest data
Monday and Tuesday, April 20 and 21, were the ugliest days in history for crude oil, but the natural gas futures arena turned a blind eye as the price of the energy commodity rallied.
The daily chart shows that natural gas futures had been in a bear market trend since November 2019 as the price made a consistent pattern of lower highs. On April 20 and 21, the price action took the price of May natural gas to higher highs at $1.97 and $1.974, above the April 8 peak at $1.918, ending the pattern of lower highs that had been in place since late 2019.
Open interest at 1.225 million contracts was close to the level last year when the metric stood at 1.251 million contracts. Price momentum was rising towards overbought territory on the daily chart, with relative strength just above a neutral reading. Daily historical volatility at around 85% reflects the wide daily trading range in the futures market.
Meanwhile, the bullish reversal on April 16, which created a higher low at $1.555 per MMBtu, launched the price of natural gas and ended the bearish price pattern that had gripped natural gas over the past six months.
The level to watch on the upside
A close above the $1.813 per MMBtu level on Friday, April 24, will mark the fifth consecutive week of gains in the market that traded to its lowest level in twenty-five years in March.
The weekly chart shows that price momentum was trending higher along with the relative strength indicator, and both metrics were approaching neutral readings. Now that natural gas broke the pattern of lower highs, the next level to watch on the upside is at $2.025 per MMBtu, the mid-February peak. Above there, there is likely to be congestions between the $2.25 and $2.50 level.
Natural gas is always full of surprises. In a week where the price of crude oil traded to a price that many thought impossible on the downside, natural gas quietly made a move that ended a bearish trading pattern.
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The United States Natural Gas Fund L.P. (UNG) was trading at $13.48 per share on Thursday afternoon, down $0.68 (-4.80%). Year-to-date, UNG has declined -42.20%, versus a 5.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andrew 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.