The US gas prices continue to move in close proximity to the $2/mmBtu level. It hasn’t been possible to take hold below this landmark level, but buyers also lack strength to make a significant upward rebound. In such a situation, the price movement into the 2.15–2.2 range represents an opportunity to go short, waiting for a return to the level of 2.
Prices hit a new local low on Friday as the Energy Information Administration (EIA) reported a 25 bcf restocking of US gas storage. Although the actual increase was lower than the 28 bcf forecast, the EIA data was still assessed negatively by the market. This is due to the fact that the total volume of gas stockpiles in the US now stands at 1855 Tcf. This amount is 33% higher than last year, and 19% higher than the five-year average.
There is a surplus of fuel in other parts of the world as well. According to RBC Capital Markets, Spain, which has the most LNG import terminals in Europe, has already 85% of its stockpiles full, meaning that the national market could quickly become oversupplied. The UK gas export is rising as the country lacks large storage facilities, and LNG continues to arrive at a record rate for this time of year.
In addition, China is experiencing a record high level of LNG re-export amid a slow recovery in demand. Japan and South Korea, another major gas buyers, are also reselling LNG cargoes to other countries in order to prevent domestic oversupply.
The current rebound in gas prices is worth using for selling, as the fundamental picture remains pessimistic. With no significant increase in demand or decrease in supply, gas prices will continue to keep close to the $2 level.
Consider the following trading strategy:
Sell gas in the 2.15–2.2 range. Take profit – 2. Stop loss – 2.25.
This content is for informational purposes only and is not intended to be investing advice.