According to a survey done by KPMG LLG Global Energy Institute, 73% of US energy executives believe that Nat Gas will remain between $3 – $4 in 2013. Survey respondants felt that supply of Nat Gas will continue to be high with large investments into the sector underway. Also, production centers that were shut in can be reinstated to keep up with increasing demand (if any), which will help to keep price low. Yesterday’s Department of Energy weekly inventory report shows that stockpiles have risen 99 Billion cubic feet to 1.964 trillion in the week starting 6th May, narrowing the deficit from 5% to 4.1% from the 5-year inventory average levels.Looking at global economic slowdown, energy demands will be lower in the near future, which will add further downward pressure and push prices from here
Looking at price action, the uptrend that has been in place since April 2012 lows seem to disagree with what industry players think. In fact, the rally since Feb 2013 has been extremely strong, pushing 9 consecutive weeks of rally before facing a pullback in the form of 3 Black Crows, which is a respectable bearish reversal signal. However, the bearish reversal is facing a slight setback as current week’s price levels seems likely to break the bearish streak. Furthermore, it is questionable whether price will be able to head much lower considering the strong support that lies await in the form of 3.75 top in Nov 12 and Mar 11 low. Furthermore, price is trading within a rising channel with the intersection around 3.75 lurking round the corner, which will provide support against strong movements.
It is strange that industry players are suggesting that price can fall to $3 in 2013 considering that even Jan lows are 15 cents above the mark. To have price break $3.75 and bring it to this level would require a significant continued shift in demand/supply. Current evidence only suggest that price may be tapered from achieving higher highs, in line with the technical outlooks rather than a full on bearish reversal. Perhaps these guys know more than what they say, or perhaps general sentiment tended to be wrong when it comes to picking up tops and bottoms (see OANDA Historical Open Position Ratios to see how traders tend to get tops and bottoms wrong). In any case, continue to watch 3.75 as for indication of any bullish rebound or confirmation of bearish reversal in the next few weeks or so.
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