Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.

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Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.


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US NATURAL GAS: DRAWING CONCLUSIONS © Leo Haviland February 17, 2014

United States natural gas inventory days coverage probably will be quite low at the end of the 2013-14 winter draw season. The NYMEX natural gas complex includes not only the nearest futures continuation benchmark, but also actual calendar months and actual seasonal (summer; winter) and calendar year strips. These various marketplaces do not necessarily all travel in the same fashion. Yet assuming normal weather for the balance of this winter, the NYMEX natural gas complex “in general” probably will continue its major bull move.

Given the expected low days coverage in US natural gas inventories by end March 2014, it would be unsurprising if the NYMEX nearest futures continuation contract significantly challenged major resistance around 6.10 (recall the January 2010 pinnacle). However, as winter ends and the nearest futures natural gas contract becomes a springtime one (such as April 2014 or May 2014), sustained moves in the front month contract over 6.10 will be difficult (at least in the near term). The supply/demand situation for the actual March 2014 gas contract (the current nearest futures) is not quite the same as that for the May 2014 one (when inventories are building). If colder than normal weather occurs during the balance of this February and March, a spike above the 610 summit (even if it does not last very long) is probable.

Admittedly, the NYMEX natural gas complex is vulnerable to a rather significant price decline from recent tops. Suppose weather for the balance of this winter season is warmer than normal; that may help to inspire a price drop.

However, even with normal weather, interim price declines may occur. Although the current inventory situation in US natural gas displays rather low days coverage relative to consumption, the shortage will become less severe during calendar 2014 as a whole due to a year-on-year rise in production and fall in demand.

Though the April through October 2014 build season probably will reduce the existing significant days coverage shortfall, it will not eliminate it. Since days coverage for the next several months (through the 2014 build season at least) probably will remain somewhat below normal, this will tend to support prices in the NYMEX natural gas complex in general.

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US Natural Gas- Drawing Conclusions (2-17-14)
Charts- NYMEX natural gas (3 charts, for essay US Natural Gas- Drawing Conclusions) (Feb 17, 2014)