To say that the price action in natural gas is poor would be a massive understatement.
Natural Gas
To kick off the trading session on Monday we saw the natural gas gap higher but it has since turned around. This does not surprise me because the persistent weakness in the natural gas contract is something that you could pretty much bank on at this time of year. Every day my email box has questions asking why natural gas is so cheap if Qatari liquefied natural gas had so much damage done to its infrastructure.
There are a multitude of reasons for this but the most important thing that most retail traders have no concept of is that they are trading in the Henry Hub contract. The Henry Hub contract is based out of Henry, Louisiana. In other words, it's a US contract. The United States has something akin to the ability to power the entire planet for 300 years with natural gas alone.
Market Supply and Seasonal Trading Strategy
Canada which obviously shares quite a few pipelines with the United States has even more. In other words, natural gas is never short of supply. There are times where we see drastic cold temperatures in the United States drive pricing higher but that is more the exception and not the norm.
Between now and the end of the year I think this will be a very interesting contract because overall I would be looking to fade short-term rallies which is my typical default move this time of year, but I also recognize that if we get extraordinarily hot weather this summer that could lift the market. Later this year I anticipate that exports to Europe probably have something to say and may elevate a little bit more than we're used to seeing in the fall and winter.
In the meantime, though anytime, this market rallies I am looking to short it. I would be particularly interested near the $3 level but it might be a while before we see that level again. If you contrast this with Rotterdam and its natural gas market, it's a completely different world. Unfortunately, I've read far too many times about people coming into the natural gas markets and thinking that they are outsmarting the participants when in reality, they're not trading the right contract. I remain bearish and probably will be for at least the next 2 to 3 months.