The bearish tone in natural gas gives way to a rally after the second injection of the year – velocityshares 3x long natural gas etn (nysearca ugaz) seeking alpha eur j gastroenterology hepatology impact factor


There is a great episode of "Seinfeld," where George Costanza decides that everything he does in life is wrong. George decides that since all of his decisions have made his life a misery, he vows to ignore his impulses and do everything opposite ignoring what his brain tells him is the correct course of action. At first, he achieves great success by becoming opposite George.

The lesson from that episode is that history tends to repeat. How many times have we heard the advice that we should ignore history at our peril? Albert Einstein once said that the definition of insanity is repeating the same behavior and expecting a different result.

Anyone who has traded natural gas over past months, and even years, understands that impulses to go long or short the energy commodity are often wrong. There have been countless times when fundamentals such as weekly inventory or production data can lead to a wrong decision causing losses in the futures market. For technical traders, there are many times where a support or resistance level leads traders astray and into incorrect and financially painful risk positions. Natural gas is a market that typically punishes the greatest number of speculative positions when they line up on the same side of the market. If George Costanza knew something about the energy commodity, opposite George could have become a legendary and profitable trader in the commodity that trades on the NYMEX division of the CME. A bullish withdrawal season in retrospect

The withdrawal season that just ended a few short weeks ago provided market participants with an abundance of bullish data since early November. The season of peak demand started one week earlier than in past years at the start of November 2017. Natural gas in storage went into the withdrawal season at the lowest level in three years at 3.79 trillion cubic feet. The two preceding years saw record amounts of the energy commodity in inventories as each year it entered the withdrawal period with over four tcf in stockpiles.

As the weekly chart highlights, the price of nearby NYMEX futures hit a high of $3.661 per MMBtu at the very end of January, but as the focus shifted to the upcoming injection season, it fell. While inventories continued to decline to the eventual low at 1.281 tcf in late April, the price traded in a tight range from $2.53 to $2.839 from mid-February through last Friday. A range of 30.9 cents for the energy commodity is more suited for a single day or week in the historically volatile natural gas futures market. However, the lowest level of inventory in storage in three years, a late end to the withdrawal season, and the rising price of crude oil did nothing to lift the price of natural gas futures. Inventory increases should pick up steam

As the chart illustrates, as of May 4 there was 1.432 tcf of natural gas in storage around the United States which is 37.6% below last year’s level, and 26.6% below the five-year average for this time of the year. Many analysts expected a larger injection of 95-100 bcf. However, the number came in a bit lower which triggered a move to the upside in the price of the commodity on Thursday, May 10. Many analysts believe that we will be seeing triple-digit inventory injections over coming weeks and months.

While the move higher to the top end of natural gas’s trading range on Thursday was in response to a lower than expected injection, it was a counter-intuitive move in that the energy commodity could not rally throughout February, March, and April as stocks dropped to the lowest level in years.

As the daily chart of the June futures shows, the price of the energy commodity attempted to rally three times in 2018, and each time the move failed to gain a head of steam and headed back to the bottom end of its narrow trading range. Both the weekly and daily chart show that price momentum shifted to the upside late last week as the price of the energy commodity moved above the $2.80 per MMBtu level once again. Critical technical resistance for June futures stands at the mid-March high on the June contract at $2.873 per MMBtu, but on the continuous contract, the level is at $2.839. On Thursday, May 10 the price made it to $2.82, and on Friday it made it up to a high of $2.818 and closed the week at around the $2.80 level. The fundamentals have expanded

When it comes to supplies, massive reserves of the energy commodity in the Marcellus and Utica shale regions of the U.S. contain quadrillions of cubic feet of natural gas. Technological advances in hydraulic fracturing, a friendlier regulatory environment, and tax reform have combined to lower the production cost for the energy commodity. Daily production of natural gas is at record levels. The bottom line is that there is plenty of natural gas around and the supply side of the fundamental equation has increased dramatically over past years.

Necessity is often the mother of invention, and in the natural gas market, two new significant demand verticals have, to some extent, balanced increased reserves and supplies. Many coal-fired electricity plants have switched to natural gas for generating power increasing the demand for the combustible commodity. Additionally, turning gas into liquid for exportation to regions around the world that do not have access to reserves and production and where the energy commodity trades at a significantly higher price has made LNG that travels by ocean vessel instead of pipeline a growing business of the future for the United States. Fading all reason could make the most sense in the natural gas market

I am struggling with the move we saw in the natural gas market last Thursday that took it to the high end of its trading range. Price momentum had declined to oversold territory on the daily and weekly charts. The price of oil is booming. Meanwhile, gas inventories fell to the lowest level in three years over recent weeks. I find it uncanny that the energy commodity chose to appreciate on substantial volume in the futures market when an injection number came in just below expectations.

As the ten-minute chart in the June natural gas futures contract on May 10 shows, the price began moving higher before the release of the EIA’s weekly report. After the number was lower than the market had excepted the price moved to the top end of its trading range over the past three months which was a period that was chock full of opportunities for price movement on the upside.

I am contemplating my next position in natural gas and have been using the short-term UGAZ and DGAZ instruments to participate in the market. I will check with opposite George, as I am quite sure that this market will continue to move in counter-intuitive fashion over the coming days, weeks, and months. Open interest, the number of open long and short positions in the NYMEX natural gas futures market has been climbing over recent sessions, which could mean a significant move is brewing in the market. My gut tells me lower, so it may be the perfect time to buy UGAZ and go long.