Natural Gas Price Prediction – Prices Surge as Weather Forecast Turns Colder

Natural gas prices surged higher and are breaking out, as colder than expected weather is expected to cover most of the United States over the next 8-14 days. Traders reacted positively to the in line build in natural gas inventories reported on Thursday by the Energy Information Administration. There is very little activity in the Atlantic or the Caribbean with one disturbance in the South Atlantic which the National Oceanic Atmospheric Administration believe only has a 20% chance of becoming a cyclone. Inventories are below the 5-year average range and prices are currently 5% below the 5-year average price.

Technical Analysis

Natural gas prices surged higher testing resistance near the August highs at 2.99. A break of this level would lead to a test of target resistance near the June highs at 3.05.  Support on natural gas is seen near the 50-day moving average at 2.85. Momentum on natural gas 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.

Inventories Rose in Line with Expectations

The Energy Information Administration reported on Thrusday that working gas in storage was 2,722 Bcf as of Friday, September 14, 2018. This represents a net increase of 86 Bcf from the previous week. Expectations were for an increase of 85 Bcf. Stocks were 672 Bcf less than last year at this time and 586 Bcf below the five-year average of 3,308 Bcf. At 2,722 Bcf, total working gas is below the five-year historical range. With the 5-year average at 3.12 per mmbtu, prices are currently undervalued given the current levels relative to the 5-year average range of inventories.