It may be hard to believe but it looks like the worst of the winter weather is behind us. Long-range forecasts for the US are showing temperatures returning to normal and even pushing above average on certain predictions. This will obviously lead to demand for commercial and home heating products falling below normal over the coming months.
Natural Gas has declined for the fifth straight trading day returning losses on this commodity of over 10% on the week. Peaking at 6.270, the reversal in the fortunes of Natural Gas have been pronounced. Some support is evident around the 4.550 level but if this fails to hold then there is enough momentum in this move to seriously re-test the 3.930 low that initially kicked off the run higher in early January. As always with a sharp move lower such as this there has been a significant pick up in the volatility of the price action in this commodity. Consequently, Natural Gas will experience heightened sensitivity to US long-range weather forecasts over the coming days, be sure to be well briefed on these forecasts if you are considering short term exposure to this commodity.
Crude Oil, which is a bit more resilient due to its global industrial usage, is also showing early signs being affected by US weather data. A positive run lasting over 7 weeks has just been brought to a conclusion, topping out at $103.30 a barrel, Crude is now depending on some strongly established support around the $101.38 point in order to find a base. There is a consensus forming that this weeks Department of Energy Petroleum Status report will show a further contraction in drawdowns, a strong signal that demand is tapering.
Cautious investors are closing their volatile Natural Gas positions and switching their funds to Oil as it offers a less sensitive exposure to the weather situation. However the question is will this be enough to keep the oil price in treble digits. The clearly linear nature of the price run up in Oil over the past two months has left a very precipitous technical situation. A break below $100 a barrel will not find any meaningful support until just under $92.
To contact the reporter of this story: James Brennan at firstname.lastname@example.org