Natural gas set to climb again

As mentioned in the previous forecast, US gas hit two-and-a-half month highs, kicking off a new wave of growth. After last week's correction brought prices down to the uptrend line from the August low of $2.65, buyers stepped in. This led Wednesday's session to close in the green. Although the gain was modest, less than 0,5%, moving higher helped ease bearish pressure.

With this bounce off the trendline, the market is now positioned to make another run to its previous upside targets of $3 and $3.22. These levels correspond to the 23.6% and 38.2% Fibonacci retracements, respectively. The bullish case is also supported by the Stochastic indicator, which signaled a rebound after crossing over into oversold territory. As it stands, $3.22 remains a logical area to take profits from long positions, as it is likely to encounter significant resistance from the 200-day moving average.

While weather forecasts do not predict a significant drop in temperatures across most of the US until late October, short-term demand for heating gas will still be limited. However, other market factors support a more optimistic outlook for rising prices. Domestic fuel production keeps sliding down. After reaching a record 108 billion cubic feet per day in August, output fell to 107.4 billion in September and decreased further to 106.4 billion this month.

A Wall Street Journal survey of US gas industry executives found that current prices are not high enough to justify developing new fields. According to their estimate, fuel has to be at least $5 per million British thermal units (BTU) to make drilling in new shale deposits outside existing areas economically viable. Without that, the only source of additional gas will be byproducts from oil wells. Meanwhile, demand is surging, fueled by LNG exporters and mounting needs from data centers.

The trading strategy down below is worth considering:

Buy natural gas at the current price. Take profit 1: $3. Take profit 2: $3.22. Stop loss: $2.8.