

The natural gas market posted a sharp rally on Monday with the spot contract rising 7%. The hefty gains occurred on a drop in production, expectations for summer heat across some regions of the country and a 3% surge in crude oil prices. The July contract settled 24.7 cents higher at $3.694.

Production levels have been trending lower, falling from this weekend’s high of 106.3 BCF/day to 103.2 BCF/day as of this morning. Platts is expecting a recovery over the next week to an average of 104.7 BCF/day, still lower than the 30 day average of 105.7 BCF/day. How quickly output recovers will be a key factor in near term price direction.
LNG feedgas demand fell Monday to 13.6 BCF/day, more than 1 BCF/day below the 30 day avg. Yesterday’s start of a 3 week long period of maintenance at Sabine Pass is impacting output levels, which are down even further this morning, at 13.3 BCF/day. Cameron LNG is also taking longer than expected to emerge from its maintenance.

Prices are trading mixed this morning. While light demand is still expected over the next 5 days, a pattern change is expected during the 11-15 day period. Forecasts show hotter temps expanding from the west eastward into the entire US June 13-17.
Technical Analysis

The July 25 natural gas contract gapped higher by .050 on Monday’s open and was well bid into the close. For the day, the contract was up .247 (7.2%) on moderate volume of 199,977 contracts.
The rally has stalled at the lower-3.700 area which is the 40 day moving average on the July daily chart.
The market remains in a longer term sideways trend that began last November with support at the 2.850-3.000 area and resistance at the lower to mid-4.000 area.
If buying continues today, the late-May 3.840 high is the next area of resistance followed by 4.000 and 4.110-4.120.
The bottom of the gap created on Monday’s open at 3.450 extending down to 3.400 is primary support.
Longer term support is the bottom of the gap created last week during expiration of the June 25 contract. The bottom of this gap at 3.200 will at some point be closed and will remain a bearish technical indicator as long as it remains open.
Moving Average Alignment – Bullish
Long Term Trend Following Index – Bullish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index - 55.65






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