Decline in Natural Gas has stalled as prices have rebounded significantly from Monday’s low of 4.176 to current’s 4.278 per million Btu. This increase came despite better than expected weather forecast which expects the cold weather to be replaced by milder climate. Temperature in New York City is expected to be around 29 degrees Fahrenheit at the lowest by the end of Jan – 2 degrees above normal. Prices have been driven largely by stronger demand (49% of US households burn gas for heat) in the past few weeks, with the additional demand resulting in a record stockpile decline according to data provided by Energy Information Administration report.
Hence, with the worst of winter expected to be over soon, it is surprising to see Natural Gas managing to hold onto most of its gains. It seems that everybody has forgotten about why Nat Gas was nicknamed the Widow Maker just 5 years ago – production levels of Nat Gas has always been healthy to put it mildly, and when demand starts to fall as Spring approaches, there will be very little to keep current bull-trend going.
So is market being irresponsibly optimistic once again?
Well, current market price isn’t the most bullish – we are still trading below the 4.34 resistance level where previous peaks of 14th Dec and 8th Jan were seen. These 2 peaks and the 2013 high made just before Christmas would have formed a perfect Head and Shoulders Pattern if not for the record breaking inventory drawdown spoiling the party. Even though prices have since rebounded, the fact that 4.34 remains suggest that the bearish pressure brought by the H&S pattern is not fully invalidated.
The only thing that is keeping prices afloat for now is the neckline of the H&S pattern, but generally necklines are not the strongest support levels and one suspect that price wasn’t able to break the neckline as there just wasn’t much trading going on due to the US holiday – volume was a mere 1/5th of 100-day average. As such, do not treat the holding of the neckline level as a sign of strong bullish support, as prices may still yet trade lower today when normal trading resumes.