Natural Gas Price Prediction – Prices Break Out and Poised to Test Higher Levels

Natural gas prices broke out on Friday after generating a bull flag pattern. Prices were unaffected by a larger than expected build in natural gas inventories reported by the EIA on Thursday. The weather has been the driver and is expected to be colder than normal over the next 6-10 days which should increase heating demand driving up the price of natural gas.  Natural gas stocks are less than last year and well below the five-year average range for this time of year.

Technical Analysis

Natural gas prices broke out and tested the $3.8 level piercing through the prior 2018 highs at 3.66. Support is seen at this level and resistance is seen near the 2017 highs at $4.0 per mmbtu.  Prices made a higher high and a higher low which is a sign of an uptrend. Positive momentum re-accelerated as the MACD (moving average convergence divergence) histogram is printing in the black with a upward sloping trajectory which points to higher prices. The relative strength index (RSI) moved higher with price action which reflects accelerating positive momentum. The current reading on the RSI is 76, which is above the overbought trigger level of 70 and could foreshadow a correction.

Inventories Grew More than Expected

Natural gas in storage was 3,208 Bcf as of Friday, November 2, 2018, according to EIA estimates. This represents a net increase of 65 Bcf from the previous week. Expectations where for a rise of 56 Bcf. Traders appear to be focused on the cold weather despite the larger than expected build. This is because stock piles were 580 Bcf less than last year at this time and 621 Bcf below the five-year average of 3,829 Bcf. At 3,208 Bcf, total working gas is below the five-year historical range. The trajectory of inventory builds are continuing to climb, but in the next couple of weeks, the withdrawal season will kick in and despite robust production, stockpiles will begin to fall. The weather is expected to be much colder than normal over the next 6-10 days.