Energy Market Outlook – June 17, 2016

Energy News and Market Information for the week of 6/17/2016

Author: Jason Scarbrough


John Kerry Weather

Natural Gas

Near term natural gas is in a perplexing, but very key spot right now. The “extreme” heat so far this summer in the major cooling markets of the country have eaten away at the natural gas production surplus – bringing us very low (seasonally) injections. This has given the bulls (in spite of all other data) some cajones and the market has been driven up to levels not seen since last October on the prompt month. The temps don’t look like they are getting any cooler this summer. With no respite in sight – the bulls should be able to keep their hot streak alive for the near term months given that it is tough to sell in front of this momentum and the possible massive cooling demand on the horizon.

Today’s EIA storage report of a +67 BCF continues the recent injection trend of only 60% of the highs that have been recorded in the past couple of years. Additionally, from the looks of the upcoming temperature forecasts, injections won’t be getting back to 2014-2015 injection levels or even the 5 year average any time soon.

Natural Gas Forecast June 2016

On the other hand – the market is overbought right  now. Even if we keep the same dismal pace of injections through the injection season, it is possible that we start the winter with another record BCF in storage. Because the demand is “100% weather driven” related  (burning nat gas for power gen). This makes us a bit dubious of the current upside move’s longevity. The industrial complex continues to fall further into recession – there is only falling demand for power/nat gas from it. So any break in the weather may be a possible catalyst to push the market back down to the year’s lows.

Industrial Sector Electricit Sales

Technicals: Neutral to Bullish

As stated above, the market is definitely overbought. But there are still some indicators (bull and bear) that are making it hard to pick a direction right now. Our trusty studies – MACD and parabolic indicators – are still suggesting we continue to the upside.  If we focus purely on the July contract chart – there is a very clear and stubborn resistance level at $2.635/MMBtu. Today that level was tested for the 6th time this year and for the 4th time in the current consolidation range. This also makes us dubious of the current rally continuing. The bulls failure to break through this level makes one want to call at least a correction/pullback if not a reversal (given the reality of the fundamentals). But very hard to sell in this environment (probably hear this over and over again), if a selloff does occur – it is likely that the bulls would be very easily pushed towards the door. If they are able to break out to the upside then I would look for the bulls to take it towards $2.90/MMBtu with a stopover at around $2.70/MMBtu.But it would seem for now, they have run out of ammo.

July Chart

July 2016 Gas Technicals

 

Continuous Chart: The retracement shown here is from 2015-2016 selloff

July 2016 Continuous Technicals