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Natural Gas Fundamental Analysis, Week of March 27, 2017

By:
James Hyerczyk
Published: Mar 26, 2017, 07:27 UTC

A late winter/early spring blast of cold air helped support natural gas prices last week which was good news for bullish traders. May Natural Gas futures

NATURAL GAS

A late winter/early spring blast of cold air helped support natural gas prices last week which was good news for bullish traders.

May Natural Gas futures closed the week at $3.153, up 0.149 or +4.96%.

The return of winter during March after it was declared over by some meteorologists in late February helped encourage new professional speculation in the futures markets.

According to fresh data released by the U.S. Commodity Futures Trading Commission, money managers raised their net-long position in natural gas by 7.8 percent in the seven days ended March 21 to the highest level since June 2014. Additionally, bears cut short bets to a six-week low.

Although natural gas has recovered only 50% of its break from its late December high to its late February low at $2.737, the current price action is encouraging enough to draw the attention of professional buyers. They seem to have already forgotten about the unusually warm start to 2017 and have shifted their focus on the erosion of the supply glut. While inventories remain above normal, gas exports to Mexico and elsewhere are climbing as output from shale basins stagnates, bolstering prices.

In other news, according to the U.S. Energy Information Administration, domestic supplies of natural gas fell by 150 million cubic feet during the week-ended March 17. This was slightly less than the decline of 153 billion cubic feet expected by analysts.

Total stocks now stand at 2.092 trillion cubic feet, down 399 Bcf from a year ago, but 266 Bcf above the five-year average.

Natural Gas
Weekly May Natural Gas

Forecast

Aside from a few volatile swings due to trader reaction to short-term factors like temperatures, the longer-term outlook for natural gas is looking bullish. This assessment is based on support from the cold temperatures, increased LNG exports and struggling production.

Even though the money managers are supporting the market and looking for further upside action, they may face a roadblock this week because the forecasters are predicting natural gas demand to be moderate to low.

As touched on earlier, the main range is $3.603 to $2.737. Its 50% to 61.8% retracement zone is $3.170 to $3.272. This is the key area that investors will be watching closely over the near-term. It will be controlling the near-term direction of the market

An early indication of strength will be the overtaking of the 50% level at $3.170. This will be followed by a short-term target at $3.213. The trigger point for a huge surge to the upside is $3.272.

A failure to overcome and sustain a rally over $3.170 will signal the presence of sellers. This could trigger a short-term pullback. It will also mean that longer-term investors may have to build a better support base before moving prices higher.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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