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David Becker

Natural gas prices moved lower on Wednesday ahead of Thursday inventory report from the Department of Energy. Expectations are for a 4 Bcf draw according to survey provider Estimize. This follows last weeks 29 Bcf draw which was larger than expected. The weather is expected to be warmer than normal in the United States for the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration.  Demand declined driven by reduced power generation in the latest week.

 

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Technical Analysis

 

Natural gas prices moved lower Wednesday following Thursday 3% decline and closed down another 3.2%. Prices are poised to test the May contract lows at 1.58, and then the continuation contract lows at 1.51. Resistance on natural gas prices is seen near the 10-day moving average at 1.64. Short term momentum has turned negative as the fast stochastic generated a crossover sell signal. The current reading on the fast stochastic is 15, well below the oversold trigger level of 20 which could foreshadow a correction. Medium-term momentum has also turned positive 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).

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Demand Declines

Demand falls, driven by power generation. Total US consumption of natural gas fell by 1% compared with the previous report week, according to data from the EIA. Natural gas consumed for power generation declined by 2% week over week. Industrial sector consumption decreased by 2% week over week. In the residential and commercial sectors, consumption remained at last week’s level, averaging 27.2 Bcf per day. Natural gas exports to Mexico increased by 1%.

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