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Natural Gas Approaching $2.25 Support

Published 01/23/2021, 09:53 AM
Updated 07/09/2023, 06:32 AM

Natural Gas futures on the NYMEX had a negative week closing 11.2% lower than the previous one at $2.44. EIA confirmed on Friday a rather bullish withdrawal of 187 Bcf in working underground stocks for the week ended January 15. Total inventory is currently at 3,009 Bcf, 1.2% higher y/y, 7% above the 5-year average. Stocks were 5% above the 5-year average in the beginning of the withdrawal season early in November.

On a continuation of this post-winter downtrend, price fell hard and quickly from levels of old resistance as we had anticipated, forming its fourth leg and it is now close to strong support. The market struggles to find fresh buying volumes for quite some time now. We have wanted to confirm the $2.60 level as the new resistance for price to naturally reach lower lows. Another $2.25 touchdown is very likely until the end of spring, just before the market reverses on seasonality for the winter of 2022. January 22 contract remains flat at $3.00 while EIA somehow optimistically expects a $3.50 peak. Three months ago EIA was wrongly optimistic about the current demand, many banks were too. We have been selling rallies on exhaustion on near term charts since late October when we have identified a seasonal ceiling and we do not want to become too greedy about this idea now. We had correctly predicted that the market's seasonality feature would have not being affected by exterior factors. Changes in supply and demand were already factored-in early last summer. We will now let the market decide for us, potentially showing us another range lower. Range-bound behavior will be very likely for the coming months as shoulder contracts are now trading in larger volumes.

The outlook does not look bright as consumption is easily keeping pace with demand amid the industry's consolidation. Technically Recoverable Reserves are at record high while the online rig count is starting to go up lately only two months before the new refill season begins. Renewables are directly challenging the domestic gas-fired electricity generation market share. From all planned U.S. utility-scale electricity generation capacity additions in 2021, Natural Gas will account only 6.6%. Solar and Wind combined will offer a 70% share. U.S. macro data and the Dollar Index to be routinely monitored. Daily, 4hour, 15min MACD and RSI are pointing entry areas.
Natural Gas 4-H Chart

Latest comments

so,now can buy in?
No, It is too early for a long term risk. Stay with the near term charts.  Since late October we have been strongly recommending selling bounces or rallies on exhaustion... read past analysis, this is a weekly. Although the downtrend has lost momentum, ranges are moving lower and we have no interest in buying this market when operating below the $2.90 level. This level could be lower when the market reverses in Summer, then we are going to be buying any dips on the cheap until the winter of 2022... Seasonality feature is looking well built for another year.
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