Natural Gas Price Prediction – Prices Surge but Run Into Resistance

Natural gas prices rebounded 9% on Monday, as short-covered positions quickly. Prices were unable to recover resistance, and the trend in price action remains downward sloping. Hedge funds added to short position in futures and options in the latest week, but the open interest in the managed money space is nearly equal, which does not provide any robust short-covering opportunity. Net injection of natural gas remains robust, which should continue to generate headwinds for prices.

Technical Analysis

Natural gas prices surged 9% on Monday, rebounding sharply but failing to recapture resistance near the 10-day moving average at 1.80. Additional resistance is seen near the 50-day moving average at 1.86. Support on natural gas prices is seen near the May lows at 1.60. The 10-day moving average has recently crossed through the 50-day moving average which means that a short-term downtrend is in place. Short term momentum has turned positive as the fast stochastic generated a crossover buy signal in oversold territory. The current reading on the fast stochastic is 34, above the oversold trigger level of 20. Negative medium-term momentum is decelerating as the MACD (moving average convergence divergence) histogram is printing in the red with a rising trajectory which points to consolidation.

Net Injections Continue to Rise Above Average

The EIA reported last week that net injections to working gas totaled 103 billion cubic feet for the week ending May 8. Working natural gas stocks totaled 2,422 Bcf, which is 49% more than the year-ago level and 21% more than the five-year average for this week. The large overhand will be reduced by lower production levels in 2020/2021, but demand will need to recover for prices to rise.