Energy Market Outlook – August 4, 2016

Energy News and Market Information for the week of 8/4/2016

Author: Jason Scarbrough

Energy Market Update -2016-08-04

In the face of the dog days of summer – which are proving to be pretty brutal across the US so far (and the forecast doesn’t look like much of a reprieve), why can’t the bulls seem to make a real run to the upside?

Bullish Technicals – Sep Contract

  1. MACD on the Sep Contract turned bullish on July 28th  (MACD = Moving Average Convergence Divergence)
  2. Parabolic indicators turned bullish on July 25th
  3. The 100 DMA crossed the 200 DMA on July 27th
  4. The bulls blew up the head and shoulders formation on July 28th  – pushing the market from $2.66/MMBtu to $2.911/MMBtu in just two trading sessions.

Bullish Technicals – Continuous Chart

  1. Parabolic indicators turned bullish on July 28th
  2. The 100 DMA crossed the 200 DMA on July 18th
  3. The bears have failed to break support at the fib 32% retracement level 6  times since July 5th

Fundamentals for the Bulls

  1. This is likely going to be the hottest summer on record or at least close to it while production falls slightly every month.
  2. Low oil prices, along with natty prices, continue to decrease chances of any kind of production rebound – so likely stuck in a decline.
  3. Last week reported one of the most anemic natural gas injections for that week in recent memory and the trend is likely to continue.
  4. The heat isn’t going away – and the fact that this isn’t isolated to one area of the country at any given time, but the whole lower 48 –  this is an unusual summer and CDD demand will continue to weigh on power generators across the country.
  5. A delivery of 6 BCF was reported for last week – the first delivery for this report since 2006 when natural gas production was a pittance compared to the current shale boom.

The Results

  1. $3.00 gas has yet to be seen in the prompt month
  2. The bulls are unable to parlay last week’s number and this extreme heat into any kind of rally – the “one day” rally last week is turning out to be a dead cat bounce head fake.
  3. The curve is selling off – including winter – October has fallen well below 3$ to $2.78 and now Nov has gotten below 3$ to $2.94
  4. The bulls should have a lot of support, but the market has an overall weak feel to it.

The conclusion would be that so far the market is expecting such a high number at the end of injection season that without some kind of Siberian winter – we will likely get through winter with another robust amount of gas in the ground to start 2017 injection season.

It is difficult to make any kind of “call” with this much heat left to go  – but the market’s lack of will to rally given all of the technical factors (which are all turning back to bearish right now) would tell us that there is likely a selloff coming.

Unless of course a hurricane takes out that 6% of production in the gulf for a day or two – then I am sure the market will rally big time.

Some Bearish Fundamental Outlooks

  1. Another likely decline in WTI this fall
  2. Winter outlook so far is warmer than normal to normal
  3. The likelihood of a La Nina forming is diminishing quite a bit

A Very Bearish Technical Outlook

  1. The back end of the forward curves have stubbornly stayed put while the front has made this summer run.  The curves are just about backward-dated.  Showing the unwillingness of the market to look for long term price increases.

September Chart

September Chart

Continuous Chart

Continuous Chart

 

IRI Multi Model Probability Forecast

 

Final Chart