Fundamentals aside, today’s price action is likely to be driven by short-covering due to the increased volatility in the crude oil market. Oversold conditions are also a catalyst behind the early strength.
Natural gas futures are trading higher on Monday. There were no fundamental changes over the week-end so the rally is likely being fueled by oversold technical conditions and short-covering in response to the price surge in crude oil futures.
The rally is likely to be short-lived, but it will be welcomed after a steep seven-session drop from $2.768 on April 10. In addition to alleviating the oversold conditions, a short-covering rally will also give bearish traders another opportunity to re-short the market at more favorable price levels.
At 12:34 GMT, June natural gas is trading $2.560, up $0.025 or +0.99%.
Although today’s surprise events in the crude oil market are likely driving the price action, favorable weather conditions and improving production are expected to continue to weigh on prices until cooling season demand returns.
NatGasWeather forecasts for April 21 to April 28, “Mild to warm conditions will dominate the US this week with highs of 60s to 80s for very light demand. There will be slightly cooler exceptions across the far northern US as a weather system exits the Rockies and tracks through mid-week. A second weather system will bring heavy showers to the south-central US and Texas, although still warm with highs of 70s and 80s. Additional weather systems are expected next weekend, the most notable bringing modest cooling across the far North for a minor increase in national demand. Overall, national demand will be low to very low.
Last week, the U.S. Energy Information Administration (EIA) reported that U.S. supplies of natural gas rose by 92 billion cubic feet for the week-ended April 12. Analysts were looking for an increase of 90 billion cubic feet for the latest week.
In 2018, the EIA reported a 34 BCF withdrawal, and the five-year average injection is 21 Bcf. Total stocks now stand at 1.247 trillion cubic feet, down 57 billion cubic feet from a year ago and 414 billion below the five-year average, the government said.
Fundamentals aside, today’s price action is likely to be driven by short-covering due to the increased volatility in the crude oil market. Oversold conditions are also a catalyst behind the early strength.
Based on the short-term range of $2.768 to $2.525, the next upside target is the 50% to 61.8% retracement zone at $2.647 to $2.675. Given the downtrend, look for sellers to re-emerge on a test of this retracement area.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.