(Bloomberg) -- After an arctic cold spell and record seasonal demand failed to send U.S. natural gas futures surging, there’s little hope anything else will anytime soon.
In other words, get used to gas trading in a narrow range, perhaps for years to come, thanks to excess supplies. That’s because traders are looking past the next 10 days to milder weather ahead and production once again soaring to all-time highs, said Walter Zimmermann, chief technical analyst at ICAP Technical Analysis.
“It seems like natural gas is doomed to a trading range,” Zimmermann said in an interview at Bloomberg headquarters in New York Wednesday afternoon. “The weather is out the wazoo, the weather is to die for, it’s really extraordinary. It’s got to be the most disappointing point in the year for the bulls.”
This year, gas prices have been stuck in the narrowest trading range on record since the New York Mercantile Exchange launched its futures contracts in 1990, a mere $1.046 per million British thermal units. Even after a cold blast boosted demand in the lower 48 states to record seasonal highs this week, futures have remained below $3.
Gas may be locked in such tight trading ranges for several years to come with prices finding support from rising exports but capped by the ample supplies, Zimmermann said. Bullish traders have had to contend for the first time with the reality of how quickly producers can bring new supply online by tapping a backlog of drilled but uncompleted wells, he said. Nationwide, that backlog of oil and gas wells from shale-producing regions jumped to 7,354 in November, the most in government data going back to 2014.
“To be brutally honest, natural gas is a chronically oversupplied market,” Zimmermann said.
This fundamental issue of excess supply makes U.S. gas a microcosm of commodities globally, he said. All major resources -- including crude oil, copper and grains -- are oversupplied and are all poised to test 2016 lows, especially if the rally in equities falters. Zimmermann sees the break in equities taking place in the first quarter and as soon as January, which would drag commodities down across the board.
The run-up in equities outstripping commodities is the “giant sword of Damocles hanging over energy,” Zimmermann said, in a reference to the mythological metaphor of an imminent threat hanging over one’s head.
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