Energy Market Outlook – Jan. 19, 2018


Author: Jason Scarbrough

Overall – it will take a lot to undergo and maintain a market breakout to the upside without sliding back down into the mid 2’s over and over – but it is shaping up to have the pieces in place to make it a possibility.

The EIA reported a net gas storage withdraw of 183 BCF for the week ending 1/12/2018. This week’s report was below the market’s expectation which was centered around a 196 BCF withdraw. It is bearish against 243 BCF withdraw in this same week last year and bullish against the five-year average withdraw of 170 BCF. A second pretty big miss from the prognosticators in as many weeks allowing the market to stretch its legs and bring in some volatility – which is a very good thing for the bulls.

Natural gas inventories currently stand at 2,584 BCF.  This is the lowest level for this time of winter since the Polar Vortex back in 2013/14 – 368 BCF less than from this same week last year and 362 BCF below the five-year average for the same time period.  The withdrawal this season sits at 1.21 TCF – 76 more than last year.  The market has already withdrawn 69% of the 2017 season’s refill (that was paltry to begin with).

Next week’s number is likely to be a big one as we actually had a second freeze in Houston and the rest of the country saw the arctic temps for much of the week, but for now forecasts show to be rather mild and therefore keeping a very hesitant cap on prices.   I do think that if any sustained weather comes, the market is situated to use up all of last year’s storage additions and then some – ejecting the bears from this market on the short term.  And perhaps giving the bulls some much needed cajones to begin to move this market out of the hole it has been in for so long.  Or maybe not.  I think we need to see a material rise in industrial demand (use and hedging) bc of the record setting production that we have seen and will continue to see- in order for the bears to lose the dominance they have enjoyed and create some staying power on a bullish run.

The forecast change from December to January could be argued to be a little bullish for FEB MARCH APRIL – but the south and the east still show a significant probability to remain above normal temperatures.

Technicals are showing a key breakout on the Fibonacci levels at $3.084 that has happened twice this year so far – and the trade has followed through (sitting above that number for 6 trading sessions) – a few more  days will prove to be the most since the attempt at the beginning of this winter in November (that failed miserably- twice) and then we have to go back to May that was the top of the 3 month run from 2.50 -3.43.

So the top of the trade looks good for the bulls – but the bottom of the trade (short term) hasn’t really found a solid bottom – that would likely come from the fact that currently – the bears OWN this market.  If a bottom does start to form – I would think it would have to be 2.86 as the Alamo – 3.00 as the near term continuation bottom.

The March/April spread has continued to narrow since last April down to 16 cents today – while that is up from a low of  4.7 cents back in mid December, this is certainly a bearish indicator for the end of winter confidence of the market.

To the upside, 3.43 is likely then to the 4.00 highs from 2016 after some difficulty with the $3.50 psychological resistance level.

Parabolic and MACD are both bullish – however the market is a bit overbought.