Look Out: Natural Gas Will Fall Further

It's already been a hard week for natural gas, but it looks like there's more pain to come.

Natural gas futures were hammered on Thursday, as government supply data showed the biggest weekly gain in inventories in four years. Supplies rose by 111 billion cubic feet, which was more than the 93 million to 97 million expected, and well above the 72 billion cubic feet we saw last week.

(Read More: US natural gas supplies grew last week)

Worse, the consequent downdraft happened to coincide with the break of a key technical level at $4, causing many long positions to liquidate.

Natural gas pipeline construction.
Keith Wood | Stone | Getty Images
Natural gas pipeline construction.

The increases in domestic supply because of advances in exploration have been well advertised, and currently garner much more attention than global demand stories.

Natural gas is still reeling from the headwind of the warmest winter on record in 2011-12, and the move toward average temperatures in the following year has not erased the memory.

Friday's trade below Thursday's low convinces me that the weakness will continue. I will adopt a bearish bias at the current level of $3.83 with a target of $3.66. A trade of $3.95 will return me to neutral.

Jim Iuorio is the managing director of TJM Institutional Services. Follow him on Twitter: @JimIuorio

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