Commodities | Apr 07 2010
By Rudi Filapek-Vandyck
A completed and confirmed head-and-shoulders formation for natural gas and a technical break-out for crude oil futures – has the divergence inside the energy sector ever been as pronounced as this year?
We doubt it. Rising risk appetite or not, natural gas prices remain captivated by the revolution in the global energy sector, a revolution that goes by the name of shale gas or, if we take an Australian approach, coal seam methane gas.
Different names, same basic principles, same macro-economic outcome: the US has transformed from an importer of natural gas into an exporter and Europe is now keen to add unconventional sources of natural gas as well – with some urgency as the Russians have yielded too much power for too long when it comes to the supply of gas in the eyes of many European politicians.
The opening up of newfound sources of non-traditional gas supply has had one marked impact on the sector: prices have been pushed into a relentless bear market, while cousin crude oil is experiencing the exact opposite.
Pre-Easter economic data have traders and experts talking about US$90 and US$100 per barrel again. And while others keep on pointing out that lacklustre global demand at this stage does not even deserve oil prices at present levels of mid-US$80s, it remains to be seen whether anyone with a long position in the oil market really cares.
To complement the market-momentum picture as described above, technical market analysts at Barclays Capital have now provided a technical picture that remains supportive for further divergence between oil and gas prices in the near future.
As fas as natural gas prices are concerned, price charts show a completed head-and-shoulders pattern in combination with prices falling below four and six month old trendlines; confirming the bearish outlook.
As far as crude oil futures are concerned, the analysts are now convinced prices are on their way to US$90/bbl. And as this price level represents the 50% retracement level of the July/December 2008 decline and a nice round number, the analysts suspect the price level will prove “sticky” initially. Ultimately, however, they believe resistance will give in, allowing prices to surge to US$94/bbl.
For the short term, crude oil and natural gas should move into the same direction, with natgas prices expected to put in a counter-trend bounce after the recent sell-offs. Longer term a return to the 200 moving average is anticipated and that is a whole lot lower than present price levels.
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