From the July 01, 2009 issue of Futures Magazine • Subscribe!

Natural gas drops

Natural gas has not had the same immunity from the laws of supply and demand as its crude partner in the energy complex and after a brief dollar induced rebound this spring, is back below $4.

Paul Flemming, director of power and gas for Energy Security Analysis Inc., attributes the weakness to a big drop in demand, particularly from industrial users. Flemming adds that although producers are looking to shut in some supply due to price, production is still higher than a couple of years ago. “It is a double whammy and translates into higher inventories,” he says.

Flemming sees support at $3.50 and resistance between $4.50 and $5 for the remainder of the summer. He adds it will take a heat wave or a threat of a hurricane for prices to test that resistance. “It is going to take a weather event to get there, $5 would be the ceiling unless there is actual hurricane damage.”

Darren Dohme, energy analyst for R.J. O’Brien, expects natural gas to test the lows around $3.50 in July before a strong technical correction. “Look for a major low in July and then be aggressive. A lot of fund money will come in,” he says.

Dohme has resistance at $4.80 and expects gas to get there on the technical move. He adds it may take a weather event to take it out, but if the August contract can get through $4.80, a test of $6 is likely.

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