Natural Gas Price Prediction – Prices Whipsaw and Remain Undervalued Despite Low Inventories

Natural gas prices attempted to move higher on Tuesday but they were unable to pierce through resistance levels near last weeks highs at 2.83. Support is seen near the 10-day moving average at 2.78.  Inventory levels remain near the lower end of the 5-year range according to the Department of Energy.  Trader’s now await both the ISM manufacturing report which will describe potential manufacturing driven demand and Thursday’s inventory report from the Energy Information Administration.  Natural gas prices are 12% below the 5-year average, which is 3.14, which makes them relatively cheap when comparing them to the 5-year average inventory level.

Natural gas prices whipsawed on Tuesday attempting to move higher but unable to pierce through last weeks highs. While momentum is positive and the MACD histogram continues to have a positive trajectory, the fast stochastic has quickly moved from an oversold condition to an overbought condition. A break of 80 level on the fast stochastic could foreshadow a correction.

Inventory levels are now at the bottom end of the 5-year range.  According to the EIA natural gas inventories are 705 Bcf less than last year at this time and 557 Bcf below the five-year average of 2,830 Bcf. At 2,273 Bcf, total working gas is within the five-year historical range, but just barely above it.  The injection season for natural gas ends at the end of October and there needs to be a substantial increase in stocks to reach the 5-year average range.

The current weather conditions show that weather is moving west to east with a standard zonal flow. It also appears that a troughing pattern is developing where warm weather is pushing up and covering most of the mid-west. The weather is expected to be warmer than normal over the next 8-14 and 6-10 day forecast according to the National Oceanic Atmospheric Administrations. Warmer than normal weather will increase power demand especially in Southern California where natural gas is used to generate electricity.