American Oil and Gas Reporter - December 2015 - 27

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MARKETMATTERS
October Low
May Be The Bottom
For Gas Price
Natural gas prices continue to drag on the market, dipping to
$1.948 an MMBtu in late October. Low prices are consistent with
high levels of production and underground storage, despite gains
in marketed output. There is some chance, however, that this may
be the low price for the season.
In its natural gas storage report for the week ending Nov. 2-typically the end of the annual injection season-the U.S. Energy Information Administration put working gas stocks at 3.978 trillion
cubic feet. This established a new high water mark for gas in storage, but a new high in excess of 4.0 Tcf was expected to have been
established by the time this article is read.
One reason for this is the woefully low level of heating degree
days (HDDs) being generated in this El Nino winter. The National
Oceanic and Atmospheric Administration's Climate Control Center, which tracks HDDs, reports that as of mid-November, the United States had accumulated 338 HDDs since July 1, 146 fewer
HDDs than normal. This is a 30 percent shortfall below normal
and 18 percent behind last year.
Inventory gains have added to natural gas price pressure. According to EIA, supply builds were especially strong last summer,
with injections outpacing the five-year average most weeks. Total injections reached 2.502 Tcf during the injection season starting in April. Overall, the just-ended season saw the second highest build ever recorded, falling slightly short of 2014 storage injections.
Higher consumption has not been enough to support prices,
even though EIA notes, "During 2015, marketed natural gas production remained several billion cubic feet a day above year-ago
levels, and set a monthly record in August at 81.3 Bcf/d, 1.5 Bcf/d
greater than the previous record."
Nonetheless, October's $1.948 price could represent a low for
natural prices this season. Despite continuing growth in underground storage, prices had not challenged that low through midNovember. Expiration of the November natural gas futures contract left a gap of nearly $0.27 as the December contract became
spot. Prices then traded in a range, offering little guidance for natural gas's next direction.
Futures market technical considerations often can help when
fundamentals are indecisive, and there may be some price-supportive factors forming. "There are very bullish hammer bottom
candles on both weekly and monthly charts, (and) there is major, bullish RSI divergence on daily, weekly, and monthly
charts," commented one technician.
A "hammer" is a price pattern in which price moves well below its opening and recovers to close near or above its opening.
It suggests a bottom may be forming.
Market sentiment is extremely bearish. Nonetheless, Elliott
wave support held at the $1.948 low, prompting this observation,
"The spot minus strip spread rebounded from a precisely successful
test of key support. The message of the price action is that we
Transactions in securities futures, commodity and index futures, and options carry a degree of risk. Past
performance may not be indicative of future results. This column is for informational purposes only. It does
not represent an investment offer, solicitation or recommendation.

"It is not a leap of faith to regard the

$1.948 low as a double bottom against the
$1.902 low of April 2012 with higher

prices ahead.

should be looking to the upside potential from here."
Technical resistance can be seen at $2.610 and $2.420, and support is at $2.270 and $2.020. Price bulls are hoping current prices
are unsustainably low.
Another technical consideration is that natural gas price lows
occur in pairs. If natural gas's recent low represents capitulation
to the idea that this year will have an El Nino winter, it is not a
leap of faith to regard the $1.948 low as a double bottom against
the $1.902 low of April 2012 with higher prices ahead.
Elsewhere, prices for petroleum liquids are not showing a bottom, and global oil fundamentals point lower.
Bulls are hanging on any example of strength. They cite problems in Brazil, Iraq and Libya as evidence of recovery, and were
viewing the Organization of Petroleum Exporting Countries' December meeting with hope as well. But oversupply in Asian markets is being displaced into Europe as excess crude seeks new outlets with further ramifications in the Western Hemisphere.
Worldwide stockpiles of 3 billion barrels aren't helping the
bullish case, either. With so much supply, even extreme political unrest in the Middle East and North Africa is unable to move
the needle.
A report from the International Energy Agency strengthens the
bearish case even more. IEA estimates global stock builds exceeded
97 million barrels a day in October, a year-on-year gain of 2 MMbbl/d.
Lower prices have presented in the form of higher demand,
but IEA says, "Gains in demand have been outpaced by vigorous production from OPEC and resilient non-OPEC supply-with
Russian output at a post-Soviet record and likely to remain robust in 2016 as well."
❒

ALAN H. LEVINE is chairman
and chief executive officer of
Powerhouse, a registered affiliate
of Coquest Inc., and a commodities
brokerage offering hedging services to the energy industries.
Levine has more than four
decades of experience as a petroleum specialist. He may be
reached at alan@powerhouseTL.com or 202-333-5380.
DECEMBER 2015 27

American Oil and Gas Reporter - December 2015

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