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David Becker
Natural gas daily chart, July 24, 2018

Natural gas prices rebounded on Tuesday, but traders are reluctant to purchase natural gas due to cooler than normal weather than is forecast to cover most of the United States over the next 8-14 days according to the National Oceanic Atmospheric Administration. Cooler than normal weather reducing natural gas demand as it drops the need for peak electricity demand. With inventories below the 5-year average, it’s hard to determine if inventories will reach the 5-year average by the end of the injection season. Trader’s now await Thursday’s inventory report from the department of Energy.

Technical Analysis of Natural Gas

Resistance is seen near the 10-day moving average at 2.76. Support is seen near an upward sloping trend line that comes in near 2.67. A break of this level would lead to a test of the March lows at 2.55. Prices continue to form a bottom and with lower than average inventories in stock, prices are forming a base. Momentum is neutral as the MACD (moving average convergence divergence) histogram prints near the zero-index level with a flat trajectory which points to consolidation.

Traders Face End of Injection Season Uncertainty

A key uncertainty for end-of-season inventory levels is weather-driven demand from the electric power sector. Natural gas demand for electricity generation tends to peak in the summer months with demand for air conditioning. The current temperature outlook for August–October is for above-normal temperatures throughout the Lower 48 states. The Short Term Energy Outlook is currently forecasting natural gas use in the electric power sector for August–October to average about 31 Bcf per day, up 2 per day from last year for the same time period. While production is largely forecasted to keep up with growing sector demand and exports, more extreme weather could lead to higher demand for natural gas-fired generation and, subsequently, a lower inventory level by October 31.

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