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Natural Gas Trading: The Bears Want It All

April 23, 2019  

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As many of you know, we started to look for opportunities to go long natural gas once its price fell below $2.600 per MMbtu (see this article from April 17). In retrospect, it is clear that we entered the bulls' camp to early. Thankfully, we started with a small position, and we are still far from being aggressive. In any case, it appears that the bulls will have to put up a serious fight to get their slice of the pie.

We, as traders (who have been leaning bullish over the past few days), are in a rather awkward situation right now. On the one hand, we see clear bearish signals:

  • annual storage surplus is still projected to grow (although at a rather measured pace);
  • storage deficit relative to 5-year average is projected to shrink (also, at a relatively slow pace);
  • dry gas production remains very strong, and y-o-y supply-demand balance (both "weather-projected" and "weather-neutral") is still expected to remain positive (i.e., bearish);
  • the general bearish sentiment is very strong (May contract is down more than 10% - the most bearish performance in ten years).

On the other hand, there are factors which favor the bulls:

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