Gas Petrospective – September 23, 2010

Natural gas prices were up almost another nickel yesterday, and traders were looking at a number of factors. We have had extremely heavy short-covering this week, with more than 25,000 contracts covered on Tuesday, alone. This suggests that the funds, which have been holding massive short positions for a number of years, may finally feel that gas prices have gotten as low as they can go, with the recent low at $3.61.

There certainly has been a good deal of talk recently about the possibility that a longer-term bottom has been established, and the longer-term charts seem to support the general theme. Now that we are officially into autumn, it seems that traders and investors are taking a fresh look at natural gas as both a commodity and as an asset. It is almost certainly priced low in relation to gold or oil, corn or coffee. And traders seem to think this may be the right time to start thinking about where natural gas fits in the larger scheme of things.

Of course, active tropical systems don’t hurt this process. Traders were watching the development of a tropical system near the Gulf of Mexico, and were watching the conveyor belt carrying Lisa closer to the Caribbean. Looking at the charts, prices seem to be coming to a critical period here, and they will need to choose between longer-term and shorter-term influences. A strong day soon could turn the trend higher, while a weak set of sessions could plunge us back away from the psychologically important $4.00 level.

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