The Natural Gas Futures Limbo -- How Low Can You Go?

July 29, 2013 10:13 AM

Strength in West Texas Intermediate (WTI) crude oil futures are pressuring natgas futures to the lowest they have been since the first week of March 2013 when natgas futures pricing opened at $3.46. The next level of support lies at $3.408 and a close below that level would signal downside steps at $3.32 and $3.16. Below that, futures could sport a $2 handle with downtrending support all the way down to $1.902.

Natgas futures had been accosted by traders and their short-positioning and in-again, out-again shenanigans excited natgas pricing all the way to $4.44 just three months ago today. The telltale signs of short-coverings are gone from natgas futures charts at present, and one wonders if investors can hold as much sway over WTI futures as did natgas. But WTI has gone rogue.

But WTI has its eye on Brent money, and the freefalls that the market imposed on natural gas are much less likely in WTI since the spread is so narrow -- currently at XXXXX -- and producers are making hay at current prices. However, the longer WTI spends in proximity to Brent, the more accustomed U.S. producers will become to the inflated margins.

Brent crude opened today at $107.20 and ended the day modestly higher at $107.49. WTI crude opened today at $104.89 -- $2.31 below Brent -- and moved higher for half the day to 105.15 before trailing to close at 104.44 -- $3.46 below Brent.

Trader attention is focused outside natgas futures and in response, natural gas has fallen to a three-month low. Consider booking a small portion if your nerves are getting to you. If WTI comes down, traders may flee back to perceived safe haven in natgas futures and drive the price back to a higher range.

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