What is the outlook for NYMEX natural gas prices (nearest futures continuation)? Even though current natural gas oversupply is substantial and will remain so for at least a few more months, the long run bear trend probably ended with the 1/23/12 low around 223. Admittedly, warmer than normal weather for the balance of this winter may inspire an attack on or even a slight breach of the January bottom. However, production cutbacks and higher demand gradually will erode much of the mountainous oversupply and help to ignite a rally.
Suppose announced production cuts motivated by prices crashing under 275 or so do not substantially materialize. Then first quarter 2012 lows may be challenged in late August/calendar September 2012. Regulatory issues, fuel switching, economic growth, anticipated drilling rates, weather issues, oil price levels, long run gas export potential, and alternative “investment” in commodities complicate predictions and boost the likelihood of violent price swings.
Prices should oscillate within a broad range for quite some time. With support at 200/225, where is resistance? Look at 320/335, then 360/370 and 405/415. Above that loom 460 and 500/520. A band from around 200/225 to 500/520 admittedly seems very wide. Yet although 2012 is not 2009/10, recall that prices blasted much higher in a bull campaign lasting only four months, from 9/4/09’s 241 to 1/7/10’s 611. A foray up to the middle section of the broad range, 360 to 415, over the next several months is likely.
FOLLOW THE LINK BELOW to download this market essay as a PDF file.