Schork Oil Outlook: Feeling Bullish on NatGas

The Schork Report has switched our daily bias in natural gas to bullish. In the 60 sessions (since August 06th) we held our bias, the spot contract for December delivery closed lower in 36 of them, i.e., 3 in 5 sessions.

In those losing sessions the contract closed lower on average by 6.5 cents per dekatherm. Of the 24 winning sessions the average gain was 5.6 cents. Thus, the bull’s mathematical expectation worked out to a gain of 1.7 cents per session for a total gain of 20% or $1.01 ($10,090 per contract). The total peak-to-trough gain was 33.1%.

However, all goods things must come to end and for gas bears we believe it has. As we noted throughout October, the historical tendency is for gas to rally (and peak) in the fourth quarter.

We think the time for the pre-winter rally might have arrived. We are now of the mindset that the trend has turned, but of course we will maintain our vigilance. We expect the market to be trading above 4.131 by week’s end, at a minimum.

If it is, then our bullish comfort level will be assuaged. If not, well, we will then have to head back to the drawing board.

In the liquids, it comes down to tomorrow when we hope to gain some clarity regarding QE2. In the meantime, we will begin the week with a bearish bent. How we will end the week will hinge upon the U.S. dollar’s reaction to tomorrow’s FOMC meeting.

As written in last Monday’s issue of The Schork Report, given the extant inverse relationship with oil values and the dollar we assume that if the dollar firms (i.e., if the Fed’s decision has already been priced in), oil will retreat. Otherwise, we can look forward to another run towards $85.


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.