Natural Gas December March spread

Overview

One week ago we highlighted how the NG December March spread had made a contract low below 20 cents, with momentum then still being negative. The spread had then tested the lower daily chart bollinger band, doing so again Monday and Wednesday of this week. The spread pierced our first support at 15.3 cents--making a low of 13.8 cents on Wednesday. But, contrary to the spot NG futures making a fresh low the past 2 sessions, the December March spread has risen from the Wednesday low, making higher lows yesterday and today.

Technically the spread is now showing positive momentum with support seen at 15.8/16.1 cents via today's and Monday's lows. Below that support lies at 10.7 to 11.2 cents via lows seen in last year's December March spread. Upside resistance comes in at 25.5-26.1 cents and then at 28.2-28.6 cents.

The spot futures market has been overwhelmed this week by weak weather forecasts that are keeping heating demand light. Additionally ample gas inventories in storage have been a negative. But the market is said to not be so eager to keep spot futures below $3.00. But, the past few sessions have seen open interest rise on the CME, with what we believe has been fresh short positioning in the December through March strip. Will this be supportive for the December versus March spread if short covering would occur?

The notion of production possibly being dialed back as crude and natural gas prices have fallen is a likely supportive element for the December versus March spread. Also lending support is the strong feedgas volumes for LNG exports seen in recent days. A change to cooler weather for the back half of October into early November would also be supportive.

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This article and its contents are provided for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any commodity, futures contract, option contract, or other transaction. Although any statements of fact have been obtained from and are based on sources that the Firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed.

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