Energy Market Outlook – May 25, 2017


Author: Jason Scarbrough

The EIA reported a net gas storage injection of 75 BCF this morning for the week ending last Friday –  This week’s report was above the market’s expectation which was centered around a 66 BCF injection. It is bearish against 71 BCF injected in this same week last year but a good bit below the five year average of 90 BCF – likely a good bit of the use is from heating demand in this new Bizarro world of weather.  However – Natural gas inventories still stand at 2,444 BCF which is 371 BCF less than from this same week last year, but still 241 BCF above the five year average.

June 2017 contract goes off the board tomorrow and we are heading into a holiday weekend – so any movement this week could and probably should NOT be taken as indicative of market direction. Prices have been supported at current levels by mixed cool weather in the major gas consuming regions of the Midwest and Northeast and prospects for increasing LNG exports from North America. Both these factors have been keeping the supply/demand balance in check despite increasing gas production associated with shale oil drilling. But as of right now – we are looking for the increased production to catch up over the next few months without some major heat waves.

Technicals are getting pretty interesting –

Trade is still in “no man’s land” right now – looking for support around 3.12/3.08 and then right around 3.00 near term – and all of those will be hard to break below given the time of year – the strength and follow through of bounces will be watched closely.  Note the red square highlight – 100 day moving towards the 200 day again which would create another “Death Cross” signaling a bearish turn in the market (a broader move/long term)– the last one we saw was in 2014 with the market well above $4.00 – then dropping below 2$.  It hasn’t happened yet, but again we are watching that as well.  The cross would fall nicely into the narrative of the head and shoulders formation that has taken shape over the last 6-10 months with shoulder level right around 3.36 – these are both old school signals/formations — but I am pretty old I guess.