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: CAUGHT IN THE MIDDLE © Leo Haviland February 1, 2016

“So much trouble in the world…
The way earthly thin’s are goin’
Anything can happen”. Bob Marley and the Wailers, “So Much Trouble in the World”



In economics, politics, and other cultural fields, players create a variety of competing perspectives. They select between and arrange a variety of diverse variables to produce their arguments and conclusions. In commodity, currency, interest rate, and stock marketplaces, bulls and bears therefore tell a variety of contending stories. In natural gas as in other marketplace battlegrounds, an array of speakers creates assorted viewpoints fighting to attract attention and persuade eager audiences.



“Dangerous Times in US Natural Gas” (11/2/15) concluded: “The probable range for the United States natural gas marketplace (NYMEX nearest futures continuation basis) for the next several months is a relatively broad avenue between major support at 1.65/1.90 and significant resistance at 3.10/3.45.” The NYMEX natural gas major bear trend that followed 2/24/14’s major peak at 6.493 smashed through 4/27/15’s 2.443 minor low, 10/27/15’s 1.948 interim low, and the last prior major bottom (1.902 on 4/19/12), crashing to 1.684 on 12/18/15. Assuming normal weather for the balance of winter 2015-16 and spring/summer 2016, this range probably will persist for the next several months as well.

The high since December 2015’s low is 1/8/16’s 2.495. What would enable US natural gas prices (nearest futures) to sustain travels over 3.00? It probably will require significantly colder temperatures for the balance of winter, a blazing spring and summer, or (and especially) noteworthy cuts in natural gas production. Stronger than expected US (and global) economic growth would help rally natural gas prices. A major bull move in commodities “in general” (and especially in the petroleum complex) and a significant reversal of the major bull move in the broad real trade-weighted US dollar to some extent would assist a bull move in natural gas.

However, a somewhat significant containment risk (supplies too high relative to available storage capacity), nevertheless exists for US natural gas around the end of calendar 2016 build season. If containment fears grow stronger, and especially if actual problems develop, the 1.65 floor could be broken. In addition, US economic weakness (especially if accompanied by similar slumps around the globe), renewed feebleness in commodities (particularly in the petroleum world), and a continued strong trade-weighted US dollar would help to keep US natural gas prices under pressure.


Historical analysis indicates the major bear trend in US natural gas from February 2014 to December 2015 voyaged sufficiently far in price and duration terms to conclude that a trend shift from bearish to sideways occurred with December 2015’s low. However, the dramatic February 2014 to October 2015 price tumble is not the greatest or longest on record. So a further descent in NYMEX natural gas would not be unprecedented.

Anticipated end March 2016 gas inventories probably will be high in both arithmetic (bcf) and days coverage terms, a bearish consideration. However, based upon US Energy Information Administration (EIA) anticipated end October 2016’s 52.1 days coverage level slides 3.4 days beneath the 2006-15 end October average of 55.5 days and 1.5 days under 1990-2015’s 53.6 days.

Nevertheless, modest days coverage levels for October 2016 does not eliminate a containment danger; one should focus closely on arithmetic levels. The days coverage perspective of course does not provide a complete viewpoint on the natural gas inventory situation and related price risks. After all, arithmetic quantities (bcf) of gas must be put in arithmetic storage places. Especially if little new natural gas storage capacity has been (and is being) created, containment problems could emerge around the end of the 2016 inventory build season (roughly around end October 2016). And currently, the containment risks for the end of build season 2016 are not insubstantial; this bearish potentiality weighs on prices.

Yet sustained low natural gas prices could reduce production more than some soothsayers forecast. This would help reduce containment risks. Note the big drop in US natural gas rig counts. A sustained slump back under 2.00 might boost electric power switching from coal to gas.

Everyone knows that much can happen between now and 2017, whether in natural gas or elsewhere. Yet based upon the EIA’s bcf prediction, natural gas days coverage at end October 2017 probably will be less than average, a bullish factor. And the EIA’s bcf arithmetic inventory forecast for end October 2017 implies there probably will not be a containment problem around the end of build season 2017.


Natural gas prices often travel substantially independently of both petroleum (and commodities “in general”) and so-called “international” or “financial” marketplaces and variables. Trend changes in NYMEX natural gas need not roughly coincide with one in the petroleum complex or commodities in general, or currency, stock, or interest rate playgrounds.

However, especially since mid-to-late June 2014 (NYMEX natural gas nearest futures interim high 6/16/14 at 4.886) and into calendar 2015 (gas interim top 5/19/15 at 3.105), bearish natural gas price movements intertwined with those in the petroleum complex (and commodities in general) and the bull move in the broad real trade-weighted US dollar. Such natural gas retreats to some extent paralleled slumps in emerging marketplace stocks. Note also the timing coincidence between May 2015’s natural gas top and the S+P 500’s 5/20/15 peak at 2135. In regard to the timing of the S+P 500’s May 2015 high, note that the nominal broad trade-weighted dollar (Federal Reserve, H.10, which has daily data) made an interim low at 112.8 on 5/15/15 before appreciating further.

See “The Curtain Rises: 2016 Marketplace Theaters” (1/4/16), “Japanese Yen: Currency Adventures (2007-09 Revisited)” (1/14/16), “Commodities: Captivating Audiences” (10/12/15), and various related essays.

Natural gas prices indeed can trade “on their own”. But suppose a sustained bull move finally appeared in commodities “in general” (especially petroleum). Worldwide OECD industry and United States petroleum stocks are very elevated. OPEC next meets 6/2/16. It remains determined to capture market share and induce output cutbacks by high-cost oil producers around the world (including some American and Canadian ones). But is crude oil under 30 dollars a barrel “irrational”? The chairman of Saudi Arabia’s state oil company, Aramco said: “’The market has overshot on the low side and it is inevitable that it will start turning up’”, predicting higher prices by the end of the year.” (Financial Times, 1/22/16, p20). Will OPEC reach agreement with non-OPEC nations such as Russia to boost prices? Might OPEC hold an emergency meeting?

Key global central banks battle to ensure economic growth, create sufficient inflation (avoid deflation), and reduce unemployment. The European Central Bank recently suggested it might ease its already highly accommodative policies further (ECB Statement and Press Conference, 1/21/16). The Bank of Japan recently (1/29/16) eased its lax monetary policy even further, adopting negative interest rates. Will the Federal Reserve delay additional interest rate increases?

The Fed and its allies probably do not want the S+P 500 and related stock marketplaces to crash under their January 2016 lows. They also probably do not want the dollar’s bull move to extend much (if at all) beyond its January 2016 high. The US dollar’s major bull trend has been long and powerful. From its July 2011 major low around 80.5 to the recent January 2016 high at 101.2, the broad real trade-weighted dollar has climbed 25.8 percent (Federal Reserve, H.10; monthly average). What will happen to natural gas prices if the S+P 500 (and emerging marketplace stocks “in general”) rallied substantially? What if the US broad real trade-weighted dollar weakens notably (even if it remains relatively strong)?

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US Natural Gas- Caught in the Middle (2-1-16)