Natural gas blows through technical support

Based on yesterday’s trading pattern as well as in the overnight period the market has announced that spring has finally arrived.

The spot Nat Gas (NYMEX:HPK14) futures contract blew through the range technical support level of $4.30/bbl yesterday and settled below this key level. The contract is now in a lower $4/mmbtu to $4.30/mmbtu trading range with the lower demand shoulder right around the corner.

On a spot continuation chart basis the last time the Nat Gas futures contract traded at the current level was back in about the middle of January. The futures contract has now retraced all of the winter run-up in prices as it is now trading in the pre-run up price area. The remaining bulls have been in exit mode for the last twenty four hours as the shorts seems to be gaining a level of confidence to make a stance as the start of the injection season in now only about a week away.

The Nat Gas forward curve shown in the following chart indicates that the contango starting to widen over the last month as the entire curve is also declining in value. Today’s forward curve (red line) contango is $0.319/mmbtu for the May, 2014 to Jan, 2015 spread while the same spread a month ago (Mar 1 – back curve) was at $0.24/mmbtu. The contango widened by almost $0.08/mmbtu over the last month and in the right direction to start to economically motivate the industry to begin the challenge of replenishing inventories back to the so called normal pre winter levels by the start of the 2014/15 heating season. The declining forward curve and widening contango is also casting a bearish overtone over the market as the front end of the curve is starting to reflect supply outstripping demand.

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