- The market expected a withdrawal of 41 bcf
- The price stopped falling
- Gaps on the January chart loom large
On the final trading session of November, the price of January natural gas futures on the NYMEX division of the CME fell to a low at $2.27 per MMBtu. When the energy commodity hit its low for 2019 and lowest price since 2016 in early August at $2.029, the price of January futures fell to a low at $2.475 per MMBtu. At the $2.40 level on December 4, going into the weekly inventory report from the Energy Information Administration on December 5, the price was still below the early August bottom. The price action in the energy commodity has been incredibly bearish, considering that winter officially begins on December 21.
The United States Natural Gas Fund (UNG) is the unleveraged ETF product that follows the price of the NYMEX futures. UGAZ and DGAZ are the two triple leveraged and highly liquid products that magnify the price action on a short-term basis.
The market expected a withdrawal of 41 bcf
Given the recent cold weather, the market had expected the EIA to report that inventories of natural gas in storage around the United States had declined by 41 billion cubic feet for the week ending on November 29.
(Source: EIA)
As the chart highlights, the data came in at below the level the market had anticipated. Inventories declined by only 19 bcf to 3.591 trillion cubic feet in storage as of the end of November. Stockpiles were 19.7% above the previous year, but still 0.3% below the five-year average for this time of the year.
The price stopped falling
The price of January natural gas futures had declined to a low at $2.27 per MMBtu on November 29, where it ran out of selling. In a sign that the price had moved to a level that was too low for this time of the year, the bearish data from the EIA on December 5 could not push the price lower.
(Source: CQG)
The ten-minute chart shows that natural gas rallied to a high at $2.463 in the aftermath of the bearish EIA data and was trading around the $2.45 per MMBtu level later during Thursday’s session.
Gaps on the January chart loom large
The ability to rally after the latest inventory data was a bullish short-term sign for the natural gas futures market. The target on the upside remains a pair of gaps that created an island reversal on both the daily and weekly charts.
(Source: CQG)
The daily chart of January futures illustrates the island formation between $2.826 and $2.828 per MMBtu. Price action tends to fill gaps on charts over time, and the island reversal continues to stick out like a sore thumb. On the weekly chart, the gaps are between $2.738 and $2.753.
The reaction to the latest EIA stockpile data could be a sign that price action in the natural gas futures arena will fill the gaps sooner rather than later.
The United States Natural Gas Fund L.P. (UNG) rose $0.01 (+0.05%) in after-hours trading Thursday. Year-to-date, UNG has declined -20.58%, versus a 17.39% rise in the benchmark S&P 500 index during the same period.
UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #51 of 109 ETFs in the Commodity ETFs category.
About the Author: Andrew Hecht
Andrew Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories. Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.