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David Becker
Natural gas daily chart, September 19, 2018

Natural gas prices moved lower on Wednesday, forming a bull flag pattern that is a pause that refreshes higher. There is a new disturbance in the southern Atlantic according to NOAA, but they only give this storm a 10% chance of turning into a cyclone. The weather is beginning to turn colder which will likely increase heating demand ahead of the unofficial season which begins on November 1.  Prices surged on Tuesday after an announcement from the Chinese government that they would impose a 10% tariff on 60-billion in US goods. Since the US exports natural gas to China a large tariff would potentially make it uncompetitive. Prices rallied as expectations were for China to announce a 25% tariff.

 

Technical Analysis

Natural gas prices moved lower on Wednesday forming a bull flag pattern.  Support is seen near the 50-day moving average at 2.84. Resistance is seen near a downward sloping trend line near 2.97. 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. The relative strength index (RSI) which is a momentum oscillator that measures accelerating and decelerating momentum, took a pause after shooting higher on Tuesday which also reflects accelerating positive momentum.

The Chinese tariffs could substantially affect natural gas prices. There are at least 25 prospective liquefied natural gas export projects in the U.S. are in various stages of development. Production has ramped up and a high tariff would make US natural gas uncompetitive, which would cause prices to plunge as supply would easily outstrip demand without and export outlet.

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