Henry Hub natural gas bulls entered this week at a critical point. This morning we are bound to see an extremely low injection into storage for last week; perhaps below the 50 Bcf threshold. More importantly, from a fundamental perspective, there is apparent concern in the market regarding the nearby availability of molecules.
To wit, for the first time since the coldest part of last winter a premium is being priced into the spot market on the Nymex. The fact this event has occurred at the hottest part of the summer is not a coincidence.
However, over the last five sessions since last Thursday’s extremely low injection report, bullish momentum has consistently stalled in the low 4.60s, i.e. short of the 4.667, 38% retracement (Apr-Jun) and the 4.688, 62% retracement (Jan-Apr) resistance reference points.
As such, as reiterated in Monday’s issue of The Schork Report, the urgency for bulls to break out of the current ceiling (from 4.667 to 4.688) this week in order to clear a path towards a $5-handle. That is because time is not on their side. Temps are hot now, but that is now ebbing each day we move beyond the summer solstice. Thus, if bulls cannot close the deal now, then their only likely chance for a $5 print this season is a Hail-Mary, i.e. a hurricane. Otherwise, they should prepare for a $3-handle.
Meantime, as far as the Nymex crude oil market is concerned, the bulls keep failing inside a key technical range. Since the start of the summer the bulls have botched numerous opportunities to parlay momentum at the 100-day and 200-day moving averages (78.45, 77.55 as of last night).
As such, the market has effectively been confined in between the 78.40, 62% retracement (May 03rd to May 20th) and the 72.99, 38% retracement. Similar to the situation in the gas market, a sharp contango from the spring in the front end of the Nymex curve has virtually disappeared as concern (deepwater moratorium) regarding the future prospects of nearby supply have accelerated.
This is indeed a bullish circumstance. Therefore it is just to ask why have the bulls thus far been unable to break resistance in both the gas and oil markets? Eventually they are going to tire (i.e., run out of funds) and when that happens, look out below.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.