Natural Gas Price Prediction – Prices Continue to Rally Ahead of Inventory Report

Natural gas prices continue to break out as short-covering continues. To reach equilibrium coming into this week shorts would need to cover 180K contracts. Last week, 20K were covered and there is more upside likely as the market covers 1.8 BCF of natural gas contracts. The weather is also expected to remain cooler than normal over the next 6-10 and 8-14 days according to the latest forecast from the National Oceanic Atmospheric Administration. There are no disturbances that are expected to form tropical cyclones over the next 48-hours. The EIA is expected to release its inventory estimate on Thursday. Expectations are for a 53 Bcf draw according to survey provider Estimize.

Technical Analysis

Natural gas prices rallied another 1.8% on Tuesday after surging 4% on Monday. Prices first retested the breakout level near the October highs at 2.73 and then continued to trend higher. The next level of resistance on natural gas prices is the September highs at 2.90. After this level target resistance is seen near the May highs at 2.98. Support is seen near the former breakout level near 2.73 and then the 10-day moving average at 2.57. Short term momentum is positive as the fast stochastic generated a crossover buy signal in overbought territory. The current reading on the fast stochastic is 95, well above the overbought trigger level which could foreshadow a correction. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the black with an upward sloping trajectory which points to higher prices.

Demand Rises

Demand increased across all sectors. Total U.S. consumption of natural gas rose by 2% compared with the previous report week, according to data from the EIA. Natural gas consumed for power generation declined by 1% week over week. Industrial sector consumption increased by 4% week over week. In the residential and commercial sectors, consumption increased by 6%. Natural gas exports to Mexico increased by 1%.