Natural Gas Price Prediction – Short Squeeze Buoys Prices More than 9% this Week

Natural gas prices rallied on Friday and continued to squeeze shorts out of the market. There are 2-tropical storms that have a very low chance of becoming tropical cyclones that are making there way west across the Atlantic. The weather is expected to be colder than normal in the mid-west which is helping to buoy prices. The most recent commitment of traders report for the date ending August 27, shows that managed money is short nearly 337K contracts while only long 125K contracts. This provides the backdrop for a further short squeeze.

Technical Analysis

Natural gas prices continue to trend higher after breaking out on Wednesday. Prices are testing resistance near the July highs at 2.51. Support is seen near the trend line breakout at 2.40 and then the 10-day moving average at 2.31.  Short term momentum is positive as the fast stochastic generated a crossover buy signal. The fast stochastic is currently printing a reading of 97, which is well above the overbought trigger level of 80 which could foreshadow a correction. Medium-term momentum is positive as the MACD (moving average convergence divergence) index recently generated a crossover buy signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses above the MACD signal line (the 9-week moving average of the MACD line).

Supplies are Rising and Demand Declines

Prices are rising but the fundamentals a mixed. US supply rose with increased imports from Canada. According to data from the EIA, the average total supply of natural gas rose by 1% compared with the previous report week. Dry natural gas production remained constant week over week. Average net imports from Canada increased by 8% from last week. Demand is down slightly. Total U.S. consumption of natural gas fell by 1% compared with the previous report week, according to data from the EIA. Natural gas consumed for power generation declined by 3% week over week. Industrial sector consumption decreased by 1% week over week. In the residential and commercial sectors, consumption increased by 4%. Natural gas exports to Mexico increased by 2%.