The SMC Report – Natural Gas

March 25, 2019 5:12 pm
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This Week’s Market Comments:

In our seasonal approach to the market, we break the year down into 4 seasonal periods.   We are now in the January-March winter period in which market decline is the predominate tendency.  In late December, we had put forth expectations for several market swings in the winter period which are discussed fully in our monthly and weekly reports.  Our assumptions going in were that we would see several large market swings with the initial one to the upside and then a final downward swing to end such movement in late February or March.

As to the current seasonal situation, as anticipated, the first January-March winter seasonal market swing was to the upside, as we had thought, and actually topped out in the mid to upper $3’s as we had targeted.  After achieving $3.722 on January 15th, it has drifted all the way back down to as low as $2.543.  The downside was facilitated by the elimination of the year-over-year storage deficit in late January and the failure of February weather to live up to expectations in the eastern US.  We consider this deep downside to be part of the large downward swing that we anticipated would conclude our winter seasonal in late February or March.  Please review our full body of work as to our thoughts on how deep and how long this decline might go.  We consider that we have been in a late winter season, weather inspired, countertrend bounce that we have anticipated would give way to a late season attempt to extend our winter seasonal low point of $2.543 somewhat further.

As to how last week turned out and where we are now, we did see some downward market progress last week as we anticipated in our previous weekly report, but how it played out and the extent of the progress were not what we anticipated.  Instead of beginning a drop right away, the market first rallied rather sharply to within about a penny of our recovery’s $2.908 high water mark.  It then began a slow, grinding downward drift that continued the rest of the week to a low of $2.721 and closed 4-cents lower than the previous week at $2.753.  As such, we did get some downward progress, but the rather modest degree is casting some doubt as to whether we can seriously challenge the $2.543 winter low point before our winter seasonal window closes.

Looking ahead, we would note that the winter seasonal window for a new low point has been known to extend as much as 2-weeks into April when fundamentals of storage, the supply/demand, and weather are trending bearishly.  As such, while certainly not as bearish as some other years like 2012, we are not going to rule out more downside in our upcoming final week of March as well as perhaps the first week or two of April.  In any event, though, if the market is capable of a serious downward challenge of $2.543, it has certainly waited until the last minute to do so.  Once again, we would need to see some decent downside progress to occur in the coming week to keep the challenge of $2.543 in play.  Forecasts for mild weather and a more definite, looser appearance in the supply/demand balance on Thursday would certainly be helpful in facilitating any such downside.

As to the coming week, the NYMEX natural gas futures market is currently resting about 4-cents lower than the previous week at $2.753 after a week where it opened lower but then rallied rather sharply to keep the 5-week recovery movement intact before gradually falling apart from Tuesday morning to finally break somewhat below the 4-week period of consolidation that had ranged from $2.732 to $2.908.  With fundamentals trending bearishly and seasonal forces still conducive for downside for a while longer, we look for some follow through downside in the coming week.

Much more detail on projected price level and timing of market movement for our entire January-March winter season is included in our weekly SMC Natural Gas publication.  Our publication can be sampled by contacting us at (501) 240-6700 or SMCnatgas@aol.com.

Bio of SMC natural gas advisory service:

Our approach to the market involves seasonal tendencies, fundamentals, experience, history, and technical considerations.  It was developed and validated with profitable, speculative trading experience that spanned 13-years.

SMC is registered with the Commodity Futures Trading Commission ("CFTC") as a Commodity Trading Advisor ("CTA"), and as such, it has had the ability to trade speculatively for others and to provide advice to outside entities in regard to movement in NYMEX natural gas futures.  At this time, SMC is solely engaged in the latter activity.    

SMC was incorporated in 1988 and business endeavors have included founding, growing, and selling a natural gas marketing company, speculative futures trading, and, since 2003, a natural gas futures advisory service specializing in upcoming market movement.  All endeavors with SMC have been successful with speculative proprietary trading activity especially so.  As such, SMC market perspective and advice is backed with a successful track record in natural gas futures that began in 1991.  Please feel free to call or email SMC with inquiries or questions at (501) 240-6700 or SMCnatgas@aol.com

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This post was written by Louis Rose