Natural Gas: Bullish Bias Remains in Short Term

The situation of natural gas is similar to crude oil. Investors worried about the decline of demand due to the out-break of COVID-19.....

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The situation of natural gas is similar to crude oil. Investors worried about the decline of demand due to the out-break of COVID-19. The NYMEX Natural Gas futures prices fell around 45% from the high of November at $2.862/mmbtu to the low of April at $1.552/mmbtu.

After that, the NYMEX Natural Gas futures prices rebounded around 38% to the high of May 5 at $2.134/mmbtu on the hope of the economy reopening. Currently, the futures prices eased after the U.S. Energy Information Administration (EIA) reported that natural gas recorded 109 Bcf storage injection for the week ending May 1. The total working gas storage was 2,319 Bcf as of May 1, 796 Bcf above year-ago levels.

Recently, Goldman Sachs released a report about natural gas. The bank raised the forecast prices for the rest of summer to $2.05/mmbtu from $1.85/mmbtu. In addition, the bank lowered the U.S. natural gas production estimation for summer 2020 by 0.9 bcf per day and winter 2020-21 by 0.5 bcf per day. Finally, the bank projected that 2021 natural gas prices would average $3.25/mmbtu to incentivize lower demand and higher supply to bring natural gas storage to manageable levels.

From a technical point of view, although the natural gas futures posted a pullback and returned to the consolidation zone on a daily chart, it is still supported by both rising 20-day and 50-day moving averages. Besides, the golden cross between 20-day and 50-day moving averages has been identified, indicating a bullish signal. If the prices returned the level above the consolidation zone, it would enhance the positive outlook.

The RSI also posted a "Bullish Divergence" signal, when the futures prices formed a support base above $1.52/mmbtu. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again. Currently, the RSI is supported by a rising trend line, suggesting the momentum of prices is still pointing north.

In this case, bullish readers could consider to set the nearest support level at $1.70/mmbtu. Trading above this level, the futures prices could consider an advance to the resistance level at $2.16/mmbtu and $2.38/mmbtu respectively.

Sources: GAIN Capital, TradingView

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