Natural Gas Price Prediction – Prices Drop on Declining Demand

Hedge funds are adding to short positions
David Becker
group of industrial workers in a refinery – oil processing equipment and machinery

Natural gas prices continued to trend lower, as projected supplies are outpacing forecasted demand. Traders are unwinding a large squeeze higher that has led to a selloff in natural gas. Both the 6-10 and 8-14 day forecasts are milder than normal which will likely reduce cooling demand and overall natural gas residential demand. Both Tropical storm Karen and Hurricane Lorenzo are in the middle of the Atlantic and are expected to have no effect on the US. After experiencing a huge squeeze in short positions in futures and options managed money is now selling again.

 

Technical Analysis

Natural gas prices declined 3% on Monday following a drop of 4.9% last week. Target support is seen near an upward sloping trend line that comes in near 2.3. Resistance is seen near the 10-day moving average at 2.52. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). Short term momentum continues to remain negative as the fast stochastic tumbled, falling to a reading of 7, below the oversold trigger level of 20 which could foreshadow a correction.

Demand Declines

Demand declines, more than expected driven by the power sector. Total US consumption of natural gas fell by 3% compared with the previous report week, according to data the EIA. Natural gas consumed for power generation declined by 6% week over week. Industrial sector consumption stayed constant, averaging 21.1 Bcf per day. In the residential and commercial sectors, consumption increased by 7%. Natural gas exports to Mexico increased 6%.

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