Friday, July 17, 2009

United States Natural Gas Fundamentals and Technical Analysis, (Part 3)

United States natural gas chart:
Fundamentals support lower natural gas prices due to "The Great Recession". Many analysts including me, believe there is too much supply and not much demand. The industry facing crisis, and financial crisis hit the industry badly,banks don't lend and lower natural gas price makes the situation worse. Lack of financing has positive side too, it effects the supply and when economy recovers it will help to stabilize the price and ultimately we should end up with a jump in natural gas price and other commodities, but that's very far future. I see a deflationary period before we enter the inflation era. Note that we won't reach the 2008 highs anytime soon, that was due to hedge funds speculation and market manipulation.

You might ask yourself, What could determine long-term natural gas supply, demand,
and price?

1)Incremental cost of supplies.
2)Supply and demand.
3)Price dynamics – impact on supply and demand.
4)Adverse effects of Dollar value on commodities prices.
5)availability of money to finance projects.
6)Demand response to price.

From technical perspective recent shortsqueez made UNG in the short term neutral to partial overbought, but in the long and intermediate terms UNG is very over sold. As I mentioned in my post back in June 8, 2009 "This is a pure speculation trade, with no fundamentals to back up, you need to know that you like a tiny gold fish who jumps in the shark tank, they will swallow you in blink an eye, I would wait for big guys to find the bottom before I jump in.

I need to remind my readers that three out of the last four years,
forward prices have surged in the spring and fallen by September. so seasonally we should see natural gas price head lower,but If UNG could move above $17.70 it would be very positive for natural gas in the weeks to come.