Gas prices in the U.S. are trying to halt their collapsing fall of the last few weeks once again. Prices have lost nearly 50% since the middle of December until now, and the RSI indicator records the strongest oversold condition since the beginning of 2020. At the same time, quotes went down to the range of 3.5-4, which acted as a good support in December 2021.
The main reason for such a big drop in gas prices is warm weather in the U.S. as well as in Europe. The cold snap of the early December is now behind, and nothing equivalent in temperature levels is expected for now. And due to an even warmer November, gas storages are still more than 80% filled.
However, the situation may change in the second half of January. Firstly, a new cold wave may come during this period, which will increase the demand for gas for heating. And secondly, the troubled Freeport LNG export plant in Texas plans to restart production in the same period of time. These events can significantly reduce the amount of gas in storage.
Actually, even now the withdrawal of gas from storage in the U.S. is staying at a quite high level for the current warm weather. The Energy Information Administration (EIA) has estimated storage supply over the past 2 weeks at 200 billion cubic feet. Only because of the near-record value of gas reserves this level of consumption has not yet become a bullish factor and has not led to a rise in prices.
In addition to the record 3-year oversold area of the RSI indicator and a strong support range of 3.5-4, the doji morning star pattern on the daily chart plays in favor of a rebound in gas prices. The first target for the rebound could be the round mark of 4, and then the local highs of January near the 4.15.
The following trading strategy option can be suggested:
Buy gas at the current price. Take profit 1 – 4. Take profit 2 – 4,15. Stop loss – 3,6.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.