Natural Gas - Underperformance to continue for a while!

Himanshu GuptaReligare Commodities Natural gas prices have remained subdued over the past few months and have been a clear underperformer. Despite repeated attempts, the counter failed to breach above the psychological level of Rs.200/mmbtu and drifted lower towards the support levels of around Rs.165/mmbtu and has been trading in a range for a while now. A lot of fundamental factors are keeping the prices at lower levels. As per the US Energy Information Administration recent report for April 2015, when the injection season is started the production was much higher as compared to April 2014. During the first four months of 2015, natural production came in at 8.90 tcf against 8.15 tcf during the same period in 2014. It also warned that record production from several states in the middle of the shale-drilling boom had the potential to bring hub prices down even further. Much of the new production coming from eastern states including Pennsylvania, Ohio and West Virginia is still stuck by pipeline bottlenecks, but a series of new pipelines is going to carry that production out of the region soon, which will put pressure on the prices of natural gas.  Despite being used as the top fuel for power plants in the US this year the prices hardly benefitted, understandably so! Thanks to the excesses and overflowing supply which have heaped the stocks to above five year averages during this time of year. Going forward, the weather conditions in the US are also expected to be moderate, broadly trimming the air conditioning demand for natural gas, which can rather put pressure on the prices.  The Greek problem at the same time is expected to linger on for now amidst the ongoing negotiations between the ECB & Greece, which will continue to keep the prices of the energy counter highly volatile. The attention has also shifted to China where the stock market has witnessed unprecedented panic selling which have even shown signs of spilling over to the commodity markets, given the dominance of China in the commodities' consumption space. Although the FOMC minutes for the June meeting, which were released recently conveyed a dovish stance, reiterating Janet Yellen's earlier comments and diminishing speculations of a Fed funds rate hike in September but the soft macro-economic data from the US and China amidst the turmoil in Greece continue to raise doubts over the future demand for the energy counters.  Technical structure also suggests that the counter is in strong grip of bears where the intermediate corrective rally seems to be over and it is poised to slip lower and make new intermediate lows. Traders can initiate fresh short positions around Rs.178-179/mmbtu range for targets of Rs 162-160/mmbtu, keeping a stop loss above Rs.186/mmbtu on a closing basis.