Natural Gas: At $5.00 Support Level.

Natural Gas futures on the Nymex had a negative week before closing 20% lower w/w at $5.00 for the February contract. EIA confirmed on Thursday another bearish draw of only 87 Bcf in working underground stocks for the week ended December 16. Total inventory is currently at 3,325 Bcf, 1,3% lower y/y, 0,7% above the 5-year average. The pace of reduction is slow.

We anticipated this move towards testing the $5.00 support level before February as April contract is currently looking comfortable above the $4.00 on decent trading volumes. We had set a target of $3.50 for April back in Summer when it was trading around $6.00, and it is now when we need to proceed with caution and not becoming too greedy about this trading idea on the seasonal downtrend. We have been selling rallies on exhaustion for the past six months and we now need to identify this floor before starting some buying operations for the coming shoulder season.

Inventory is already looking more than fine. 10% above the summer projections. We had been warning about this. The American LNG export projections were way too optimistic, at the same time production remains at record levels. At the best-case scenario, we had been cautioning, total American Natural Gas exports won’t ever exceed 15% of the total domestic consumption. The European Union is in shock amid the so called Qatargate. Many American companies have been associated with Qatari LNG, the most pollutant gas. The European Union has already cut consumption of Natural Gas by 20% compared to last year, can we all understand for a moment, how huge this number is for the world’s best market. And please, allow me a further comment about its bridge fuel attribute. National security around the Democratic Western world and its markets, will start making even more lawmakers think that it is better to pollute with coal coming from your own land, for another few years amid the energy transition, than to be held hostage by other producers.

The gas-fired electricity generation market share is the one that must be preserved in the United States amid this ongoing defamation of the commodity. Too many trading offices and shipping companies have been wrong at their calculations this last year or simply they have been profiteering. I do not want to comment further, I am not here to talk about windfall taxes and legislation. I am just saying that Vladimir Putin has too many friends, it seems like, in the Western energy sector. It is a disgrace for the whole industry. The fair price for the American benchmark must average $3.50 for the next year. This would be a friendly price. Considering the worldwide military alliances and the desired future market development.

U.S. macro data and the Dollar Index have to be monitored routinely. Daily, 4hour, 15min MACD and RSI are pointing to entry areas.

Merry Christmas and Happy New Year!


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