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David Becker

Natural gas prices surged higher on Friday rising 5.5% and finishing the session off the highs of the day. Colder than normal weather is expected to cover most of the mid-west of the US over the next 8-14 days which will likely buoy natural gas demand. Hurricane Delta is still active in the Gulf of Mexico which has disrupted nearly 20% of the natural gas production. The oil and gas rig count, an early indicator of future output, rose three to 269 in the week to October 8. The natural gas rig count dropped by 1 while the oil rig count increased by 4. The EIA forecasts that natural gas production will be down in 2020.

Technical analysis

Natural gas prices rose sharply on Friday falling shy of resistance near a downward sloping trend line that comes in near 2.87. Prices recaptured resistance near the 50-day moving average which is now support near 2.74. Medium-term 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 RSI also shot higher reflecting accelerating positive momentum.

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EIA Forecasts Lower Production for 2020

EIA forecasts U.S. dry natural gas production will average 90.6 Bcf/d in 2020, down from an average of 93.1 Bcf/d in 2019. Natural gas production declines the most in the Permian region, where EIA expects low crude oil prices will reduce associated natural gas output from oil-directed rigs. EIA’s forecast of dry natural gas production in the United States averages 86.8 Bcf/d in 2021, down from 2020.

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