Energy Market Outlook – June 12, 2017


Author: Jason Scarbrough

Natural gas technicals are neutral to bearish –

The technicals on natural gas have become a bit more interesting than the last update. The selloff has stalled right around the psychological $3.00 level; down from the bulls making an unsuccessful run at $3.50 less than a month ago. Physical producers were dumping physical natural gas at and above ~$3.20 in May, which would likely be the reason bulls were smacked down heading into what speculators would have you believe as another record hot summer. We would be the conclusion reached because there weren’t any spec sellers in the market at the time. This would make the higher range of 3.20-3.50 much harder to break through without the shorts piling up the paper below there (short squeeze as some rocket fuel) — while the short volume is still very low (coming off of a 526 week low at the end of May.) They have started to gain some momentum with the selloff, gaining 26.2% off of that low in the last two weeks.

Indicators are ALL bearish; however, the market is somewhat “oversold” given the season coupled with the wall street trader’s proclivity for greed looking a hot summer in the kisser. This week’s report gave a very bearish number, 106 BCF injection vs 65 BCF a year ago and 94 BCF 5yr avg – but more bullish reports are expected starting next week.

Parabolic indicators are and have been bearish. MACD has also been pointing lower, but the trusted indicator is starting to peak its head in a bullish direction. Looking at the chart with the Fibonacci retracement levels, traders have clearly found a range between the short term 50% retracement at 2.976 and the longer term 38.2% retracement at $3.084. The support seems enough to keep it above the support and the pattern looks consolidating in anticipation of the coming heat in the next few week – for a breakout back to the upside. Any breakout would be expected to be isolated in the front of the curve for all intents and purposes – with prices reacting in a much more muted fashion into 2019, etc.

We would be surprised if there was any major rally past the May high of $3.43 and given the overall outlook on production and demand in 2017 – still relatively neutral to bearish and expect the front of the curve to continue to come back to earth with some major support at $2.80. A move lower in the midst of summer heat would likely have more of an impact on the cal 18 and cal 19 prices than a run-up.

The ol’ death cross has occurred on the continuous chart for the first time since August 14, 2014. This was the last time the market cratered to below $2.00 in well over a decade giving up 2/3 of its value. This is an old school (and not a hugely popular) indicator to act on with traders….but just sayin’…