U.S. gas market “bears” have almost reached their goal

20 January 2023 85
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After a brief pause at the beginning of the week, U.S. gas prices resumed renewing their lows of June 2021. The price collapse with no significant rebounding has been going on for more than a month, and it will sooner or later cause a counterattack by the bulls. But given that the prices are approaching the round level of 3, it is unlikely that gas prices will be able to avoid testing it.

The sellers' power is so strong at the moment that a number of factors of at least a corrective rebound are almost completely ignored. Thus, the U.S. Energy Information Administration (EIA) reported a withdrawal of 82 billion cubic feet of gas from reserves over the past week, which was significantly more than the forecast volume of 71 billion cubic feet. But this had little or no effect on prices.

Traders are also ignoring forecasts of colder weather in the U.S., which is expected in the middle of next week. But since the degree of future cooling and its duration are estimated as moderate compared to the Arctic storm of December, there is no impact on gas quotations.

The long-awaited restart of the Freeport LNG export plant could have saved the situation for buyers of gas futures, but there has been no information on the issue. There’s a greater chance of the plant's restart date being shifted to February than a possibility of its return to operation in the remaining days of January.

Considering all the mentioned factors, the only reason for gas prices to rebound now is the condition of being technically oversold, which is shown by most indicators. But this condition alone won’t be probably enough to prevent the prices from declining to the level of $3. But once this level is reached, many bears will surely want to lock in their considerable profits, and we will finally see a rebound at least due to closing of some short positions in gas futures.

The following trading strategy version might be offered:

Sell gas within a range of 3.1-3.2. Take profit - 3. Stop loss – 3,3.

Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.

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