Energy Market Outlook – March 3, 2017


Author: Jason Scarbrough

Al Gore’s ManBearPig has been sighted….
(Global Warming for those not familiar with the subtle nuances of South Park)

The EIA reported an injection of 7 BCF for the week ended 2/24/17 yesterday.  This was the first time an injection has ever been reported before the second half of March (we are three weeks + ahead of schedule).  During last year’s “extreme” mild winter, the first injection wasn’t until the week ended March 18th.   In addition, the 7 BCF injection landed well outside of the expectation bandwidth of a 4-6 BCF delivery.  So, an unprecedented injection, a bearish surprise and indication that the remaining “winter” storage reports will likely fall on the very bearish end of the averages. This would obviously take the market lower, right?  Wrong!

Yesterday, bullish trade actually broke through what has shown to be a pretty solid resistance level of $2.80 on the prompt and all indicators are now pointing bullish. Given the bearish weather outlook this spring, the possibility of El Nino returning, and the fact that the market was (and really still is) very oversold – I am intimating that this mini rally is an oversold rally at this point. There is a very good likelihood that we end winter with a bearish 2.19 TCF or more in the ground –  leading the way for another very full cup this fall.

Technical watch: on the continuous chart
The fib retracement (May ’16 gap up to Dec ’16 highs) levels to watch now – 2.824 is acting as an initial resistance level on the prompt chart and the April contract chart.  The 200 day moving average, currently at $2.923 is likely to act as resistance.

The next levels are the psychological $3.00, the fib 50% at $3.048, and the 62% retracement at $3.274

Technical watch: April contract
The initial fib retracement from the March 2016 low to the DEC high is essentially the same as the continuous at $2.821.  Above there – a downside gap resides open – the top of the gap is $2.946, it wouldn’t be a surprise if this gap gets filled before the market moves down again. 50% retracement is at $2.979 and the 200 day is at $3.080

While none of these levels are necessarily of urgent import to hedging – keep in mind that we are looking to those as a “breaking point” to judge strength in the market.  Right now, I don’t buy the strength.

Continuous Chart


April Contract