Natural gas price under pressure

The slide of natural gas appears to be never-ending, as prices hit new lows not seen since 2002. In some producing regions, “working gas stocks are at a record high for the 17-year EIA history” according to the Energy Information Administration. Stock piling for the winter has also supplemented inventories, far ahead of the seasonal averages.

Recent market action in natural gas shows very little to be excited about for the bargain hunters. Any counter move to the downward slide appears to be simple short covering, before paring further losses. In fact, over the past 20 trading sessions, prices have fallen by over 30 percent, showing only two sessions with noticeable gains.

On that basis, it is hard to see any constructive price action for the coming week, as there is good reason to believe that a further decline in prices is imminent. At present momentum, it is also highly probable that we will see new lows and the possibility of 10-20 percent further downside in the short term.

It is clear to see that natural gas does not share the same ties that crude oil has been seeing to the equity markets. Given that the recent spate of positive economic data, it really should only be seen as lesser degrees of evil and that the global economy still has a lot of progress to make in order to restore full confidence. But the price relationships between equities and crude oil remain firm, and that cannot be ignored.

The current levels in crude inventories remain arbitrary in present times with respect to prices, as stocks remain very high. There are little signs of further depletion, as the demand situation appears unchanged. Most of the price developments are pointing towards momentum, rather than fundamental reason.

The past week posted a test of the $70.00 in crude, however failed to push lower. Although the number $70.00 is fairly arbitrary, we see this level as the next psychological level that needs to be broken, in order for a larger scale liquidation of longs in the markets. Until that happens, we need to recognise that the market could squeeze higher. I say this with fair warning, though, as there are also signs that the crude oil market is thinning out at present levels, with less appetite of initiating new longs to the market at present levels.

From an investment point of view, I think it also a good time to mention that if you had bought crude at the beginning of the year, you would have doubled your money thus far. I doubt that anybody would be able to deny that as a very good trade and that it would be a good time to take profit. As we move into an important season for Energies, I think it also very important to note that we are moving into an important season for equities, too. October has many times proved to be a challenge to equities. As equities have been a strong driver for crude oil this year, we need to stay cautious moving into times that have been troublesome for equities.