Will Bulls Take Natural Gas Higher?

| October 14, 2013 | 0 Comments

Ask anyone who watches the energy markets and they’ll likely tell you the same thing…

… It was a lackluster summer for natural gas.

Ambivalent weather resulted in above average July EIA inventory reports.  As a result, natural gas plunged from $3.80 mmBtu to $3.30 by August.  The early summer drop was a surprise for many as June, July, and August are considered seasonally strong months for natural gas.

But then sentiment shifted…

Bulls re-entered the market in mid-August in preparation for the winter heating season. Prices rose through mid- September, took a breather for a few weeks, and are currently trading at a three-month high near $3.80.

Let me show you what I mean…

Natural Gas

As you can see, this summer of 2013 wasn’t at all what bullish natural gas investors were hoping for.

But the most important question now is…

… Where will natural gas go from here?

Let’s take a look at the most recent EIA inventory data for clues. 

First of all, yesterday’s storage report revealed a 90 billion cubic foot (bcf) injection for the week of September 4th.  While the reading is bigger than last year’s report of 72 bcf, it was below analyst estimates of a 97 bcf build.

Last week’s inventory addition puts US storage levels at 3,577 bcf… that’s 3.7% below last year’s reading of 3,715 bcf.  As a result of these seemingly bullish readings, the price of natural gas is currently rising to multi-month highs.

But take a look at the EIA’s storage chart…

Nat Gas Storage

As you can see from the blue line above, natural gas storage levels are approaching the top of the 5-year average range (gray shaded area).  A few more weeks of storage additions and we could see inventories run back to all time highs achieved last November of 3,911 bcf.

Of course, whether inventories hit that mark depend on US temperatures over the next few weeks.  The National Oceanic and Atmospheric Administration’s (NOAA) 6 to 10 day outlook is calling for below normal temperatures in the Midwest.

However, the Eastern seaboard is expected to bask in above average temperatures through the end of October.  As a result, the near-term weather outlook is a toss-up.

But here’s where it gets interesting…

While some are quick to discredit the Farmers Almanac as a reliable weather forecasting tool, it actually has a very dependable degree of accuracy.  And according to this 197-year-old publication, the winter of 2013-14 is going to be severe.

As a matter of fact, the Farmers Almanac is expecting “bitterly cold”, below normal temperatures for two-thirds of the US by January.

What does that mean for natural gas?

As you may know, September, October, and November are seasonally strong months for natural gas.  As a result, investors will look to buy into any weakness over the next few weeks in preparation for winter’s cold temperatures.  

But it won’t be until mid-December that we’ll really see what bull natural gas investors are made of. 

Should we get the cold winter like the Farmer’s Almanac suggests, we’ll likely see natural gas breach last year’s high of $4.40 mmBtu by February.

Until Next Time,

Justin Bennett

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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