Schork Oil Outlook: Natural Gas Bull Running Out of Prospects?
NOAA makes book against the bulls: In their latest update, the National Oceanic and Atmospheric Administration (NOAA) lengthened the odds of an above normal Atlantic hurricane season from 3:1 (25%) to 9:1 (10%). At the same time, they shortened the odds on a below-normal season from 3:1 (25%) to 3:2 (40%).
Odds of a normal season were left unchanged at even money, 50/50. According to NOAA, the new outlook reflects two competing climate factors. The ongoing multi-decadal signal remains in place and has been associated with elevated levels of Atlantic hurricane activity since 1995, along with warmer than average sea surface temperatures (SSTs) in the tropical North Atlantic Ocean and Caribbean Sea.
However, the bulls not only have to now compete with poor industrial demand, but also with an El Niño, which developed in the tropical Pacific Ocean during June and is already producing increased wind shear in the Main hurricane Development Region (MDR, consisting of the tropical North Atlantic Ocean and Caribbean Sea).
As such, the bottom continues to fall out from underneath the Henry Hub curve for cross-seasonal spreads in accord with these outlooks. Last night the Oct/Nov settled at a life-of-contract low with the contract for October delivery settling at 82.9 cents on the dollar to the November. Down the road… the winter strip (Nov’09 to Mar’10) finished at 93.2 cents on the dollar to the subsequent summer (Apr’10 to Oct’10). A week ago the winter was at 94.2 cents on the dollar.
Note the charts below from today’s issue of The Schork Report.
Are the bulls running out of steam? Could be? While their heavier counterparts in London have already hit $76, WTI in New York can’t even muster a serious run to $75.
Yesterday Bullish momentum stalled 4 cents short of Friday’s 71.61 pivot-high, but support on the ensuing selloff held 9 cents in front of the $70 critical point of reference. Thus, should the channel fail, marked today at 69.94, here at The Schork Reportwe will drop our daily Bullish bias.
As far as today goes, offers through drop-dead support at 69.94 alerts to follow through momentum towards our 68.78 inflection point. We will look for further weakness below here towards our 68.01 intraday. On the other hand, a rebound through Friday’s 71.61 pivot-low clears a path towards our 72.42 inflection point. Above here we will look for bids towards our 73.19 intraday.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.