Natural Gas Forecast December 26, 2012, Technical Analysis

The natural gas markets fell on Monday rather hard considering it was a holiday session. With Christmas Eve there normally comes extremely light volume, but this move is one that we feel can be trusted. After all, Friday formed a shooting star just at the $3.50 level. This would suggest that we have come back and found resistance at the top of the gap that was formed back in October. This would go well with the overall attitude of the markets, and as such we choose look at this from the “bigger scheme of things.”

Because of this, we feel that we will hit lower prices in the short-term, but it might be next week before we actually see a move. After all, volumes will be a bit on the light side but we certainly do not want to be involved in buying this market matter what happens. It simply has broken down, and it looks like it’s ready to continue the overall long-term bearishness that we’ve seen for so long in the natural gas markets.

Going back to the basics, the simple supply and demand equation in this market is completely skewed now that the Americans have found over 14,000,000,000,000 ft.³ of viable natural gas in their country alone. Because of this, it is almost impossible to imagine a scenario where natural gas prices take off for too long. Remember, although the Americans have found that much, that doesn’t even take into account how much the Canadians have and probably the massive amounts that neither country has bothered to find yet. Simply put, natural gas is going to be very cheap for a very, very long time.

There are some estimates that natural gas alone could power the United States for well over 300 years. Because of this, natural gas prices will continue to be very cheap in the United States. On other exchanges however, that could change slightly because of the shipping costs involved. The only bullish case that we can make for natural gas going forward is the fact that so much of it will be exported places like Japan. However, overall that’s a very weak case to make for bullish prices. We are selling on any hints of rallies, and a break of the lows from Monday.