Energy Market Outlook – June 1, 2016

Energy News and Market Information for the week of 6/1/2016

Author: Jason Scarbrough


Natural Gas: Bullish

There has been a very warm start to our cooling season in the major CDD regions on the US (east of the Mississippi) – this has translated into a very disappointing injection pace for the bears – coming in far below normal numbers.  This is certainly a great deal of the short term ammunition the bulls are using to push natty higher. Tomorrow, the market is expecting an injection of around 80 BCF – about 60% of the norm.  The problem for the bulls long term is that even if we complete the injection season with around 60% every week – there will likely still be another record in the ground – making it very tough to see sustained prices above $2.50 this year – but not out of the question that bulls make some kind of run at some “spikey” highs towards 3$.

Technicals

As for the rally this week – the bulls are once again taking advantage of the sizable contango gap between the expiring month and the new prompt (now July delivery) – buying the expiration – shopping for stops – creating another short squeeze.  This time of year, bears are hard to get out of hibernation(ugh) to make any kind of bold stand, especially in front of a push like this.  There is a massive gap up on the continuous chart at expiry of close to 20 cents (the largest gap up in recent memory), MACD turned bullish the same day – as did the parabolic indicators, and trade on the continuous chart has crossed both the 100 DMA – and for the first time since November of 2014, it has crossed the 200 DMA.  The next stop on the fib retracement is $2.534 (62%).

So it would not be surprising if this rally got the prompt back up to test $2.50 – or even the YTD contract(July delivery) highs around $2.65.   But to do this, the bulls will have to break through at least 3 relatively significant resistance points.

  1. The bulls are currently stalled at the July contract’s 62% retracement from the move from those YTD highs to the march low of $1.939 at $2.369
  2. The July contract has some previous resistance that proved relatively significant last February around $2.45
  3. The 200 DMA lurks right around the same level

However – there is very little stopping a move to $2.50 on a technical basis on the Continuous chart.

July Chart

July Technicals

Continuous Chart

Continuous Technicals