Natural Gas on the Way of a $3.00 Breakout

Natural gas futures on the Nymex had a volatile week before closing 0.4% lower than the previous one at $2.39. EIA reported a build of 79 Bcf in working underground stocks for the week ended April 21. Total inventory is currently at 2,009 Bcf, 35.4% higher y/y, 22.2% above the 5-year average. Both percentages have remained high so far, in the beginning of the refill season.

After identifying a floor, we have been buying the dip for the past couple of months and we now want to proceed cautiously with the same strategy on the near-term charts having our eyes on the summer contracts for even more call option operations ahead. Of course, the current level of inventory is spectacularly high, but we remain confident that all this has already been priced in. Support at the low $2.00s has been confirming our strategy.

We want to target $4.00 for the July contract but our trading must protect any positive margin, while the same ranges are giving multiple times the profit. A breakout above the $3.00 will give the definite momentum for this market and a later uptrend sentiment for the coming winter.

The fundamentals for this market have not changed a bit during the Ukraine war. We have warned about the low U.S. exports compared to domestic consumption a whole year ago. Total U.S. LNG supplies to Europe averaged 6.5 Bcf/d, while total U.S. demand was at 92 Bcf/d. The best market in the world for natural gas, the E.U. has done a lot to reduce consumption by 20% and to diversify its electricity generation mix. It is this market that is so crucial also for the domestic production in the United States. Renewables and Nuclear are looking strong.

All the above pricing is happening at a time when both markets, the U.S. and the E.U. are operating nearly at full employment and most of producers and trading offices worldwide have been in a mission to artificially sustain high prices. Of course, market has its own rules. It is also a buyers’ market. U.S. macro data and the Dollar Index must be monitored routinely. Daily, 4h, 15min MACD and RSI are pointing to entry areas.