Natural gas prices followed oil into a quick and deep correction. Oil couldn’t hold its support level and fell lower. Gas prices descended to a similar support level. However, unlike black gold prices, oil prices have chances to reverse from this level due to a Wednesday strong bullish candle.
After a quite warm November, temperatures will drop this month across Europe, and the region's fragile energy networks will be tested by increased pressure on natural gas. Maxar Technologies Inc. and Marex's long-term forecasts note an increased chance of a cold snap across the biggest part of the continent.
The U.S. will have no choice but to export more gas to Europe, thereby creating a domestic deficit.
An additional bullish factor is the announcement of the U.S. and U.K. energy partnership. The main target is a consistently high level of liquefied natural gas (LNG) exports from the U.S. to Britain.
The launch of the Freeport LNG plant in Texas has been delayed. It was planned to launch in mid-December, however, the new date is sometime around the end of the year. Freeport LNG is the one that exports large volumes of gas to Europe and this is one of the reasons for the correction of natural gas at the moment. It can be assumed that this negative event for gas prices has played out in recent days.
It’s expected that the next data on natural gas inventories in the U.S. will be in the negative zone due to the seasonality of this indicator. This is where the depth of these inventory declines can be assessed for price forecasting purposes.
Since the current correction in gas prices was rapid, it’s possible that many market participants could get margin calls. Thus, the market was cleared from bullish speculators, which gives an opportunity for rebound of quotations.
The rebound targets are several levels that aren’t too far apart. Among them are the 200-day moving average, the first Fibonacci retracement level and the resistance level, which have already been tested several times. An average upside target can be identified as the circular 6.5 level.
A stop can be placed at the level of the sideways low from which the rebound is now taking place (5.3).
The growth of natural gas to the first target within the rebound:
Take profit - 6.5
Stop - 5.3
This content is for informational purposes only and is not intended to be investing advice.