The natural gas rate, in line with last week's forecast, continued to rise above the 2.4 level. After a month the quotes tried to consolidate above the level of 2.75 one more time, but there is a strong resistance of the "bears" again. At the same time, the corrective pullback did not grow, and on Wednesday, buyers came to the gas market. In such a situation, a new attempt to break through 2.75 from the bottom to the top is quite possible.
Lower production and increased demand from air-conditioning systems remain the main factors behind the rise in gas prices. Last week, daily U.S. gas production was estimated at 102.1 billion cubic feet. By now the figure dropped to 101.6 billion. In addition to a decrease in drilling activity, the decline in production is caused by ongoing pipeline maintenance in the Haynesville shale field.
Meanwhile, Texas continues to increase gas combustion to meet record electricity demand. Renewable energy output is down significantly compared to last year's levels because of lower wind speeds in the southern United States. Weather forecasts suggest that the heat will continue until early July, which will support demand for gas.
Ironically, wider use of solar and wind farms could significantly increase the gas consumption. The CEO of Williams Cos. Alan Armstrong highlights the need for reserving of renewable energy capacity to avoid power outages. Since it is impossible to make the sun shine brighter and the wind blow stronger, in case of a sudden increase of the energy system load there is no choice but to use fossil fuels. The Southern states faced exactly this situation.
While gas prices are still above the level of 2.55, a new approach to the level of 2.75 remains the main scenario. The positive picture is spoiled by overbought in the technical indicators. It can limit the short-term growth potential after consolidation above the level of 2.75, but will not prevent the reaching of this level.
The following trading strategy option can be suggested:
Buy natural gas around the 2.65 level. Take profit – 2.75. Stop loss – 2.55.