Energy Market Outlook – Jan. 31, 2018


Author: Jason Scarbrough

Well, I guess that’s that. The run in February gas seems to have been confirmed as a short squeeze and the trade in the March contract has made an emphatic declaration to that point today…down $0.218 back below $3.00 again. The March/April spread that couldn’t quite break out above that $0.28 level during the attempted rally would have shown some real bullish momentum on a broader scale than just the front months (see below chart). The spread has now shrunk down to $0.13 midday. There is still some fundamental reasons for this market to get out of the doldrums and the groundhog day of the mid 2’s, and while the market should be a leading indicator of these changes in fundamentals, the bulls are just so beaten down to the point of seeming dejected. It is going to take some very strong numbers in increased “new” demand (export/lng/industrial), on top of weather, to put a big dent in the glut we have enjoyed for the past 6+ years and to get the market moving in the other direction. Waiting with baited breath…because it’s coming!

A look at the longer term weakly chart — still showing very bullish for now. Note the retesting of the ~2.50 lows since July of 2016 is now trading at the high end of the consolidation range. One could argue the chart is still broken out above the consolidation range (above the 100 and 200 dma for now). So in a macro sense, this market seems to be building broad strength much more than it seems to be breaking down.

March/April spread – below — very bearish indicator headed into injection season the way it is going now.  

March Contract — MACD is still bullish for now – support at 2.962 (fib retracement) – parabolic indicator turned bearish with today’s trade. 

Forward curves – pretty boring… but longer term has slowly but surely slipped back into contango beyond 2019 whereas recent charts have shown a flat to backwardated curve for 48-60 months.

Chart from JUNE: