- The market expected an injection of 102 bcf
- Natural gas falls through three levels of support
- Another disappointment in the natural gas arena, but it is back in the buy zone
Before the release of the latest weekly inventory data from the Energy Information Administration on Thursday, May 14, the price of natural gas moved lower. After a little over one month that took the price of natural gas from a low of $1.649 on April 2 to a high of $2.162 on May 5 and broke a pattern of lower highs and lower lows, the energy commodity fell back below the $1.60 per MMBtu level on May 13.
Natural gas broke a bearish trend throughout April. It also rose to a higher high on the day that crude oil fell into negative territory for the first time.
Since May 5, its been all downhill for the natural gas futures market. The price fell by 56.7 cents to a low of $1.595 on May 13, a decline of over 26%.
Natural gas futures took out technical support at $1.765 and $1.705 on May 12 as well as the early April $1.649 low. This week’s data from the EIA was not supportive of the price of the energy commodity as it reported the second consecutive triple-digit injection into storage. The United States Natural Gas Fund (UNG) is the ETF product that tracks the price of the nearby natural gas futures contract that trades on the NYMEX division of the CME.
The market expected an injection of 102 bcf
According to the crowdsourcing Estimize website, the market’s consensus was for a 102 billion cubic feet injection of natural gas into storage across the United States for the week ending on May 8.
The data was right on target at just one bcf higher than the estimate. The 103 bcf injection pushed total inventories to 2.422 trillion cubic feet, 49.2% above last year’s level, and 20.6% over the five-year average for this time of the year.
While there was nothing bullish about the price action over the past week and the triple-digit build in stockpiles, the percentage of natural gas stocks compared to last year experienced the seventh consecutive decline from the previous week. Inventories fell below 50% above last year’s level for the first time since early March.
Natural gas falls through three levels of support
From May 12 through May 13, natural gas erased one month of gains that had created a shift from a bearish to a bullish short-term trend in the natural gas futures arena.
The daily chart illustrates that the elevator ride to the downside took natural gas through technical support levels at $1.765, $1.705, and $1.649 per MMBtu on the June NYMEX futures contract. The price fell to a low of $1.595 on May 13.
Price momentum and relative strength indicators fell towards oversold conditions. The increased downside volatility pushed the measure of daily price variance to over 74.5%. Meanwhile, the total number of open long and short positions in the natural gas futures arena rose from 1,196,832 contracts on May 7 to 1,269,948 contracts on May 13, a rose of 6.1% as the price declined. Falling open interest when the price of the market drops is typically a technical validation of a bearish trend. Speculative shorts in the natural gas futures market likely hopped on board the short side of the market as the price failed at $2.162 per MMBtu on May 5. Selling rallies in natural gas has been a highly rewarding strategy since November 2019.
Another disappointment in the natural gas arena, but it is back in the buy zone
After the recent correction in the natural gas market, the next level to watch on the downside is at the late March, twenty-five-year low of $1.519 per MMBtu.
The monthly chart highlights that price momentum and relative strength are both at or near oversold territory. The price failure could set up another buying opportunity in the natural gas futures. The downside target at $1.519 was around 19 cents below the price on May 14, while the May 5 high was over 46 cents per MMBtu higher.
The price action in the aftermath of the 103 bcf injection was a sign that the price below the $1.60 level is unsustainable for the short-term in natural gas. Time will tell if the shorts decided to push the price to another new quarter of a century low.
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The United States Natural Gas Fund L.P. (UNG) was trading at $11.66 per share on Thursday afternoon, up $0.33 (+2.91%). Year-to-date, UNG has declined -50.00%, versus a 6.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More…