The April 2010 natural gas futures contract on the New York Mercantile Exchange (NYMEX) recently hit a new low of $4.036 per MMBtu. “Last week, price support at $4.25 per MMBtu crumbled quickly following the release of the storage report,” says Valerie Wood, President of Energy Solutions, Inc.
“With warmer temperatures, analysts expect a storage injection this week.”
Storage injections normally begin on April 1, so this is bearish for prices. However, Energy Solutions, Inc. warns that natural gas prices tend to rally in the second quarter, sometimes gaining as much as 50 percent. “The historical spring rally could return natural gas prices to $5-$6 per MMBtu,” says Wood. “The front-month price move to below $4.25 per MMBtu was significant. However, price declines are slowing and that usually means momentum to the downside is weakening.”
Wood also reminds buyers that natural gas analysts tend to be the most bearish at the bottom and the most bullish at the top. “Right now, information is very bearish, but that is usually when the market delivers a surprise. A move to below $4 per MMBtu isn’t out of the question, but banking entirely on such a move is risky because technical signals indicate a natural gas price rebound is imminent,” says Wood.