Looking to the Futures
April 14, 2021
Copper’s Leading Indicator Reputation Hints at Economic Recovery
Natural gas prices have stabilized as the shoulder season begins. After a steep decline from mid-February and bottoming in March through April prices have been contained in a range between 2.650 and 2.460 and are currently threatening the top end of the range.
Natural gas is in what many refer to as the “shoulder” season. The term gets is meaning from the demand structure on either side of the winter peak. As demand increases during the winter and fall months the head is formed. The right shoulder is the current period. As temperatures begin to warm many regions are in a goldilocks scenario where temperatures are comfortable enough that households are not consuming natural gas as much to meet heating and cooling needs.
The weather picture in the coming weeks is somewhat supportive of prices. Later this week a cold front is expected to move into the central and eastern regions of the U.S. Temperatures are expected to range from the lower 40’s to the 20’s in portions of the Midwest, resulting in heating demand in these regions. Temperatures are expected to warm around April 22.
Meanwhile the western and southwestern regions could see highs in the 70’s to 90’s by this weekend.
This was a change from a previous more muted forecast that called for warmer temperatures in the Midwest and northern regions and cooler temperatures in the southern and southwestern regions and may explain the sustained rally in prices on Tuesday.
The most recent storage data released by the EIA came in line with analysts’ expectations. The report released last Thursday indicated net injections into storage of 20 Bcf for the week ending April 2. Total working storage stands at 1,784 Bcf. Stocks are 235 less than the comparable week last year and 24 Bcf below the five-year average of 1,808 Bcf.
Looking forward to the next Thursdays EIA report, analysts are expecting an injection of 67 Bcf for the week ended April 9, which is line with the 68 Bcf for the same week last year and above the five year average of an injection of 26 Bcf. If analysts’ expectations are met, this would be the third week in a row of injections.
In related news OPEC increased its oil demand forecast by 100,000 barrels of oil per day and raised its forecast for global economic growth to 5.4% from 5.1%. The report sites an expected jump in economic activity as an outcome of the U.S.’s 1.9 trillion COVID aid package and successful rollout of vaccines.
Adding to the bullish sentiment, a report released by Chinese custom authorities showed imports for a wide range of commodities increased at the highest growth rate in past four years. March imports of crude oil imports increased by 21% year over year.
Looking at prices of Henry Hub Natural Gas for May delivery (NGK21) we can see prices have rallied from the lows of the year and have closed up each of the last 5 trading sessions.
Bulls were able to achieve a close above the 20-day SMA (yellow) on Tuesday, but prices are under the 50 and 200-day SMA’s. Prices are approaching a key resistance area of $2.60, a close above this level will bring to test the 200-day SMA (white) just beyond at $2.694.
Failure to rally beyond resistance may bring yet another test of lower support near the $2.455 mark.
The 14-day RSI reading is 51 and has been rising after the contract traded at its lowest level of $2.453, and the RSI was 34. A positive divergence is in play as the RSI failed to register a lower low along with prices when comparing the lows of March 18 vs. the recent low on April 6. This suggests that selling momentum has weakened and an interim bottom may be in place.
20-Day SMA 2.575
50-Day SMA 2.725
200-Day SMA 2.694