After analyzing the movements of the natural gas futures from Jan. 12 to Jan. 22, the steep fall, and the advent of this week’s gap-down opening at $2.115, I find that this could be an opportunity to go long as the downside seems to be limited up to $1.948, a level hit by the natural gas futures on Mar. 29 and Apr. 14, 2023.
A chilling cold front swept across the US, leading to robust demand through Sunday with temperatures plunging to -10s to 30s. This was further compounded by a renewed surge of subfreezing temperatures into Texas, contradicting earlier forecasts of above-normal temperatures for the eastern U.S. spanning from Jan. 29 to Feb. 2, and leading to a sharp decline in natural gas prices.
Natural gas futures could remain under selling spree since the announcement of the natural gas inventories for the week ended Jan. 12 fell -154 bcf, a draw smaller than expectations of -165 bcf.
Last Friday, Baker Hughes reported that the number of active US nat-gas drilling rigs in the week ending Jan. 19 rose +3 rigs to 120 rigs, just above the 2-year low of 113 rigs posted Sept. 8. Active rigs have fallen back since climbing to a 4-1/2 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020.
I find the natural gas futures could see extremely volatile moves as the reversal from the current level is like as natgasweather.com says in its weather outlook for Jan. 19 – 25:
“A frosty cold front will sweep across the US Fri-Sun with snow and lows of -10s to 20s, including another round of subfreezing temperatures into Texas and the South for strong demand. A warmer vs normal pattern will gain ground over the US next week with highs of 30s to 50s over the northern US and 50s to lower 80s over the southern US. There will also be bouts of heavy rain over Texas & the South next week with local flooding. Overall, high to very high demand through Sunday, then light next week.”
Technically, in the daily chart, despite this week’s gap-down opening, the natural gas futures, holding above a significant support indicate a reversal in today’s trading session could push the natural gas futures above the immediate resistance at $2.218 and the next resistance at $2.418 by this Tuesday which is likely to confirm the first bout of buying spree.
On the other hand, if the natural gas futures retest the second significant support at $1.948, will provide one more opportunity to go long.
Disclaimer: The author of this analysis does not have any position in Natural Gas futures. All the readers can take any position at their own risk, as Natural Gas is one of the most liquid commodities in the world.