In late February, U.S. natural gas prices finally rebounded from their 2.5-year lows. From the bottom of February 22 at 2.097 to the peak of March 2 at 2.849 the prices rocketed up more than 35%. However, given the scale of the fall over the previous months, only 15% of the losses were won back. The potential for a further rise is truly great, but now a partial profit fixation is more likely, and therefore, a local correction as well.
Yesterday's 1.6% drop in gas prices followed the Energy Information Administration’s (EIA) report about the withdrawal of 81 billion cubic feet of gas from the reserves for the past week. The size of the withdrawal was more than the expected 75 billion cubic feet, but it did not have a significant impact on the market, which was more concerned about supply surplus.
The previous wave of rising gas prices was supported by declined production and low temperatures in late February and early March in the U.S. Another positive factor for the market was a persistent increase in gas volumes sent to the Freeport LNG plant in Texas.
At the same time, several factors continue to have a downward impact on the cost of blue fuel. As market observer Adam Button stated, the heating season is close to an end. He also highlighted the large U.S. gas reserves and still quite a weak rise in LNG exports, despite the partial restart of Freeport.
The strong rebound of the previous days has led gas prices into an overbought zone for the first time since mid-December. The Stochastic indicator lines have already crossed, giving a sell signal. Consequently, further we may see a corrective rollback in gas prices to the range of 2.6-2.65, after which the overbought state will be removed, and it will be possible to continue the rise.
The following trading strategy may be offered:
Sell gas in the range of 2.75-2.8. Take profit 1 – 2.65. Take profit 2 – 2.6. Stop loss – 2.9.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.