Price risk is to the upside as the downtrend in natural gas futures shows signs of exhaustion, according to technical analysts. However, they warned that market bulls should proceed cautiously, while keeping eyes on producers who may hold the key to a more sustained rally.
The October New York Mercantile Exchange (Nymex) natural gas futures contract was seesawing Tuesday. The prompt month was at $2.144/MMBtu, up 1.7 cents at 12:05 p.m. ET. The contract had traded from $2.075 to $2.202. The intraday high matched the 50-day moving average that has not been violated since July 1, Mizuho Securities USA LLC’s Robert Yawger, executive director of Energy Futures, said.
NGI’s Pat Rau, senior vice president of Research & Analysis, said the October contract has been trading within a stubborn horizontal channel since mid-July, defined by resistance in the $2.40-2.42 range and support at $1.99-2.00. Where October would trade within that range may depend on how quickly producers elect to bring back curtailed production.
Rau noted Williams’ second quarter 2024 earnings call to highlight that “U.S. producers are making a month-by-month call as to how much gas production they hold off the market. Based on producer comments, we estimate producers are holding back between 2-3 Bcf/d of gas off the market until conditions improve.”
Lower 48 natural gas production averaged 101.8 Bcf/d in August, per data from Wood Mackenzie, and 101.4 Bcf/d for the first three days of September. Rau noted, “That’s a small sample size, yes, but it’s in line with activity from late August as well, and evidence that producers haven’t really begun returning curtailed production in earnest just yet.
“Unfortunately, many of the popular technical signals are in neutral territory and not of much help right now,” he added. The 20-day Bollinger Band and the Relative Strength Index (RSI) help gauge the market’s volatility to determine if it is over- or undervalued. Slow stochastics show the location of the close relative to the contract’s high and low range, and the moving average convergence/divergence helps identify price trends. Rau said that all are trading near the middle of their respective indicative ranges.
Nevertheless, the RSI has been making higher lows while the price of gas is making lower lows, according to DeCarley Trading analyst Carley Garner. While it does not feel like it today, “this is generally a sign of trend exhaustion,” she told NGI.
Garner said supportive seasonality, historically low prices, a weaker dollar and a constructive chart setup are driving suspicion that “we are in the process of putting in a bottom.” However, she warned that market turns generally involve “head fakes and confusion.” Staying bullish will require some patience, she said.
As long as the $2.00 area holds, the risk is to the upside, Garner said. “A break above $2.30 should entice bulls to get back into the market.”
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Rau added that if October can break above $2.42, it could face secondary resistance marked by its previous 200-day moving average at $2.635. October’s all-time low is $1.991.
Seasonal Shift
Moderate national demand was forecast this week as numerous weather systems were predicted to impact many regions, with comfortable highs forecast in the 60s to 80s, according to NatGasWeather. The firm said highs into the 90s were likely mainly over the West and Southeast.
Stubborn summer-like weather could persist in the West, with highs ranging from the 80s to 100s. Elsewhere, as fall began to take hold, a cool shot was expected to sweep across the eastern half of the country, bringing highs in the 60s to lower 80s. Some early-season heating degree days were possible across the Great Lakes, NatGasWeather said.
“Essentially, weather patterns aren’t quite hot enough to be considered bullish” this week or next, the firm said. Temperatures were more likely to be “viewed as neutral, if not a touch bearish.”
The National Hurricane Center (NHC) was monitoring three tropical disturbances with less than a 40% chance of developing this week. NHC said that environmental conditions were expected to become more conducive for the system currently churning in the Caribbean Sea. The system was advancing and expected to reach the western Caribbean Sea and southwestern Gulf of Mexico by the weekend. A tropical depression could form.
EBW Analytics Group senior analyst Eli Rubin said that, with tropical demand destruction at bay, deeper supply shut-ins and strengthening liquefied natural gas exports, conditions support modest upside at the front of the Nymex curve.
“In our view, upside is eventually warranted, but the front end of the Nymex curve may remain range-bound near-term,” Rubin said.
