In recent weeks, U.S. gas prices have managed to move away from the lows of the last 3 years. However, the growth does not look sustainable: during the attempt to rise above the 2.5 level, the strength of the buyers weakened, and now the pullback under the 2.4 level is observed. For now, it is not expected that the April lows around 1.95 will be renewed, but the significant growth of gas quotes also should not be expected.
The demand for natural gas in the U.S. is at a reduced level. This situation traditionally occurs during the off-season period: the demand for gas in heating is almost eliminated, and the demand for air conditioning is low until the hot weather occurs. As a result, there has been a significant increase in the volume of natural gas in storage for two weeks now.
In other regions of the world, the situation with the demand for gas is almost similar. Only Europe slightly increased its LNG purchases in April, but since continental storage facilities are about 60% full, gas imports by utilities will stabilize or may decline slightly in the coming weeks. Forced purchases of gas, such as last year, are not yet expected.
In Asian countries the situation is more pessimistic. Some buyers, who were waiting for gas prices to drop, are increasing imports. That is applicable for India, Pakistan, and Bangladesh. However, this increase in demand is offset by a decline in purchases from the larger economies. Thus, Japanese LNG imports in April decreased from 5.57 to 5.16 million tons, and China bought 5.23 million tons compared to March's level of 5.48 million tons. Probably it will require a significant increase in gas demand, or a severe hot weather, or an even greater drop in prices.
The most likely scenario for U.S. gas prices is a further decline to the 2.2 level. The 2.3-2.4 range is an interesting place to set short positions.
The following trading strategy option can be suggested:
Sell gas in the 2.3-2.4 range. Take profit – 2.2. Stop loss – 2.5.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
