Natural Gas Price Analysis – Extreme Backwardation on Wednesday

Natural Gas Technical Analysis

Natural gas is a very dangerous market to trade. It is not for the average retail trader. The futures market has just rolled over into the March contract and we are near the $3.67 level, an area that is more average in price.

The main difference between spot and futures prices is because of winter storm Fern, which is driving up the immediate demand; that’s your spot price. Futures, however, are a couple weeks out of March, so we’re talking probably five or six weeks.

They’re estimating right around $3.67 because this storm will be long gone and we will be back to the normal supply of natural gas in the United States, which is more than abundant. Furthermore, it shows that there is no bad weather on the horizon. This is a situation where retail traders get hurt if they aren’t aware of this.

Market Volatility and Forecast

When you get this extreme backwardation, things can change rather quickly. If the storm were to get another storm on top of it, then futures will go racing higher. If not, then that means spot will have to come down.

If I was in spot, I’d be pretty bearish at this point. Futures traders are probably going to hang out down here and try to find a range. This is the normal behavior for natural gas, and as a result, I think it is what is about to happen. However, those spot contracts will have to fall pretty significantly to match the reality of what’s about to happen to demand.

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