Natural gas futures just can't catch a break. While most commodity markets are trending higher, natural gas prices continue to fall into a black hole. Inventories of natural gas continue to grow and the Energy Department predicts they will be at the second highest level ever to start the heating season.
Inventories are currently at an 8.4 percent surplus to the 5-year average. This is an overhang to the market that will give traders little incentive to expect a market turnaround. The outlook for temperatures in the next week is calling for above average temperatures and that means less demand for natural gas.
Supplies of natural gas reached a peak of 3.837 trillion cubic feet last November. The Energy Department expects supplies to peak at 3.726 trillion cubic feet by the end of this month. Natural gas futures closed at $3.333 on Friday, down 0.035. Prices bottomed last September around $2.63, so there could be some value below the $3 level.
I wouldn't be too anxious to buy this market just yet. A drop below the $3 level might get me interested if I see a nice technical reversal. Otherwise, the market is in a freefall right now and there is no sense trying to guess a bottom. The trade is to currently be short and protect your profits.