US NATURAL GAS: DRAWING PICTURES (c) Leo Haviland November 25, 2013

Over the winter 2013-14 time horizon, assuming normal weather and moderate American economic growth, the natural gas trend probably remains sideways (NYMEX nearest futures continuation). The broad range for natural gas stands from roughly 280/310 to 490/520. Many players view “around 350” as a near term equilibrium price. The 5/1/13 summit at 444 also represents important resistance.

What does the US lower 48 states working gas inventory picture unveil regarding potential price moves? Much depends on the perspective embraced regarding what constitutes average (appropriate, normal, reasonable, typical, usual) inventory levels. One factor in this regard is the historical time horizon selected. And although arithmetic inventory totals are important, observers especially should focus on the days of inventory coverage variable. After all, changing consumption levels influence industry viewpoints regarding what constitutes average, high, or low stockpiles.

Although the long run 1990-2012 vista should not be overlooked, suppose the 2006-12 horizon is more relevant for inventory analysis. Then end October 2013 natural gas inventories, despite being high in arithmetical (bcf) terms, arguably are slightly below average. Admittedly this conclusion probably is not a mainstream view. After all, most players and soothsayers devote their attention to arithmetic rather than days coverage history. In addition, assuming normal weather, natural gas stocks at the end winter 2013/14 draw season probably will be only slightly high relative to average in days coverage terms rather than moderately above average. Given this greater emphasis on the 2006-12 era, and despite the bearish supply/demand outlook for full year 2014, prices should hold above the 280/310 support band, with a test of 400 unsurprising.

With the 2006-present days coverage perspective in mind, given end build season 2013 inventories, what are price prospects if this winter is notably colder or warmer than average? A sustained move over 400 probably requires a somewhat colder than average winter (or widespread faith that such temperatures will occur). To challenge spring 2013’s top, probably a significantly colder than normal winter is necessary. But what if major inventory drawdowns in days coverage terms occur? The marketplace could climb toward and even briefly venture north of 490/520. Conversely, to sustain moves under the 280/310 floor, warmer than usual US temperatures in the key consumption regions must emerge and continue. Important support exists around the 305/310 first quarter 2013 level; note the 313 trough on 8/8/13 following the 5/1/13 peak.
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US Natural Gas- Drawing Pictures (11-25-13)
Natural Gas Chart (NYMEX nearest futures, for US Natural Gas- Drawing Pictures essay) (11-25-13)