What do the current fundamentals say about natural gas? First of all, June contract prices edged above the top of a classic “symmetrical triangle” chart pattern. Prices chopped around in a tight range since the beginning of April. Volatility left the market as winter ended and weekly EIA withdrawal numbers became injection numbers. Currently, the market is worried about colder temperatures last week that may limit the injection release for tomorrow. However, May is typically a shoulder month for natural gas demand, preventing weather from being a major factor.
SOURCE: BARCHART.COM
Big Picture Fundamentals
On top of the worry of a hot summer, other fundamentals are supporting natural gas prices. Monthly exports have risen over 50% from a year ago. International demand is expected to continue to rise. This recent uptick in exports is displayed in the chart below (Jan 14′ – Feb 17′). Notice, also, that production has steadied and even slightly declined over the past 15 months. The tight supply/demand situation (not including the potential impact from weather) has investors watching intently.
SOURCE: EIA
Another sign of the potential for higher prices is the steady increase in national natural gas rig count. The number of rigs bottomed around the same time natural gas prices did (March 2016). More rigs may indicate that natural gas companies are anticipating greater demand, and the possibility of profit from higher prices.
SOURCE: EIA
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