- Demand and supply equations always remain the main factor responsible for a change in the price trend of natural gas.
- Changing weather conditions also play an important role in defining the direction of the natural gas price trend.
- Natural gas storage could impact the price movements.
- The number of hurricanes during the hurricane season could also have a major impact on the natural gas price trend.
- Technical formations give advance signals before a breakout move.
Undoubtedly, the price fluctuation in natural gas depends on the demand and supply equation. An increase in natural gas supply generally results in lower natural gas prices, and a decrease in supply tends to lead to higher prices. Demand increases generally lead to higher prices, and decreases in demand tend to lead to lower prices. In turn, higher prices tend to moderate or reduce demand and encourage production, and lower prices tend to have the opposite effects.
Besides this, several other factors are there that could result in a directional change in the natural gas price trend. These factors include a sudden change in winter and summer weather which provide a slow and steady variation to the price trend of natural gas.
The second factor which could impact the price movements is the level of natural gas storage. Weekly inventory level provides a sudden jerk to the price trend for a shorter duration while the price trend remains on the same path.
The third reason could be the prevailing conditions that could impact economic growth that could affect the demand side of the natural gas.
Currently, the dents caused by pandemic Covid-19 have disrupted the import and export of natural gas that could be a major hurdle in the outflow of natural gas for a long time during 2021. This factor has resulted in the squeezing of long bets by commodity hedge funds during the past two months. But, despite this, natural gas futures are showing a resumption of strength during June 2021.
Other Reasons for a sudden change in price trend
Besides fundamental reasons, sudden change in the weather conditions due to the appearance of hurricanes in the Gulf of Mexico could tilt the whole price trend. Undoubtedly such a situation occurs during the hurricane season which provides a sudden change in price trend due to the possibilities of disruption in the production of natural gas.
Seven named storms thrashed the Gulf Coast in 2020, including Eta, which slammed Florida, leaving tens of thousands without electricity and flooding beach communities. While the 2021 Atlantic hurricane season is just getting underway, many residents along the Gulf Coast are still recovering from a string of storms that battered the region last summer and fall.
Claudette is the third named storm of the Atlantic hurricane season. In late May, a subtropical storm Ana developed northeast of Bermuda, becoming the first named storm of the current hurricane season. It was the seventh year in a row that a named storm developed in the Atlantic before the official start of the season on June 1.
Scientists with the National Oceanic and Atmospheric Administration forecast that there would be 13 to 20 named storms this year, six to 10 of which would be hurricanes, and three to five major hurricanes of Category 3 or higher in the Atlantic.
Last year, there were 30 named storms, including six major hurricanes, forcing meteorologists to exhaust the alphabet for the second time and move to use Greek letters. It was the highest number of storms on record, surpassing the 28 from 2005, and included the second-highest number of hurricanes on record. Hurricanes have become increasingly dangerous and destructive with each passing season.
Technical Formations Before Changing Price Trend
While analyzing the price pattern of natural gas futures, there is some peculiar formation before a sudden spike since September 2020. The first technically bullish formation appeared on Sept. 28, 2020 that resulted in a big gap-up on Sept. 29, 2020. The second such formation appeared on Dec. 28, 2020 which resulted in a sudden surge in the natural gas price continuously up to Jan. 5, 2021.
Once again a similar formation has appeared on June 18, 2021 which has gotten confirmation with the strength of the move on June 22, 2020. Undoubtedly, this could be a major thrust to natural gas futures that could result in a sudden change in the price trend. I find that this could push the natural gas futures to test the $3.675 level before the end of this month.
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