CW:Fears of a bubble stalk ‘overbought’ natural gas market
Natural gas is the now the most overbought asset class, sparking concerns that it is due a correction.
In its latest review of 200 key US-listed exchange-traded funds (ETF), the chartists at Bespoke Investment Group found that United States Natural Gas, the largest ETF investing solely in the commodity, has now moved 8.07% above its 50-day moving average.
Its share price has spiked by 17% in the past fortnight, hitting a four-month high that has taken it past MSCI Switzerland and the Swiss franc as the most overbought ETF asset class.
‘You know the financial markets are struggling when natural gas is the most overbought asset class, considering that the commodity has been a perpetual decliner for years now,’ Bespoke said.
The natural gas market has seen a considerable amount of activity in recent weeks after Russia suspended gas exports in May in order to ease the pressure on domestic supplies. However, supply in the US remains robust. The US Energy Information Administration (EIA) reported last week that storage operators injected 105 billion cubic feet (bcf) into storage, significantly above analysts’ estimates of 93-95 bcf. This resulted in a small pullback in spot prices, but influential US blog Hard Assets Investor believes this does not materially change the short-term outlook.
‘While last week’s injection was large by any measure, it was near the 104 bcf build a year ago and only modestly higher the 97 bcf five year average,’ it wrote. ‘Using the EIA’s weekly data set, inventories remain 245 bcf below the level a year ago and 72 bcf below the five-year average.’
Although natural gas prices fell slightly on the news, they have in the main been trading in the low to mid-$4 range, but some analysts see some potential for them to climb higher.
Analysts at Aegent Energy Advisors point to an improving weather outlook in the coming months after a historically cold May, noting ‘forecasts of hot weather in the southern and eastern USA for the first part of June. These conditions are forecast to raise electricity prices high enough to encourage additional output from natural gas-fired power plants,’ Aegent said.
‘Indicators are bullish to neutral for short-run,’ Aegent said. ‘The latest closing price of the prompt-month contract ($4.518) is above the five, 10 and 20-day moving averages. Differential has become positive since last week, signalling a loss of bearishness from earlier in the month and potential for additional ascent.’
