Natural gas futures are higher by 5% as of this post after the weekly inventory report showed a smaller than expected build in storage levels. The EIA showed storage levels rose by 58 billion cubic feet in the week ending July 12th. Analyst surveyed prior to the #s release had anticipated the report to show 64 bcf. Stocks stand at 2.745 trillion cubic feet, 1.2% below the 5-yr average and 13.1% below last year’s levels.
The smaller build paints a picture of a tighter supply/demand balance that will likely cause a grind higher short term. As opposed to making me bullish in the medium term it makes me less bearish…there is a difference. Don’t get me wrong this was a bullish report and the first one we’ve had in a while. The strength in the rest of the energy complex with oil and the products appreciating and the exceedingly hot temperatures domestically also contributed. Summer is ½ over and we should not see this heat/demand several months out. I think that will limit further gains.
If already long trail stops and consider instituting hedges against bullish futures trades…short calls or long puts. For fresh entire I would prefer to allow prices to work higher and be defensive. As opposed to chase longs after the 5% pop today why not sell from higher levels? Just as Fibonacci levels could be used for bullish exits I will use those pivot points to help navigate bearish entries for clients in the coming weeks.
A settlement above $3.75 in September should be followed by a minimum trade to the 38.2% Fibonacci level in my opinion. Shorts get interesting to me the closer this contract gets to $4. A 50% retracement puts futures at $4.02 and 61.8% prices are at $4.13…trade accordingly. What this piece should illustrate aside from the obvious is commodities can be traded both on the long and short side. I do not have an allegiance to any one commodity or any one direction…it is all about risk vs. reward.