U.S. natural gas prices started the current week with an impressive upward momentum. It was just the third time in the last six months that the price rose above the 3 level, but it failed to consolidate there. Today we see gas prices returning below the 3 level, closer to the summer trading range of 2.5-2.85. Natural gas market fundamentals have improved, but the recent rise in prices still looks a bit excessive.
The sharp rise in U.S. gas prices was caused by the Freeport export LNG plant restarting at full capacity. The problems with liquefied fuel production that arose last week have been resolved. As a result, gas consumption by U.S. LNG plants should increase from 12.3 to 12.8 billion cubic feet per day. This is a factor that favors higher natural gas prices, but it is clearly not powerful enough to explain all of the increase that has happened.
Meanwhile, the amount of explored gas fields in the U.S. continues to increase. According to the latest estimate, it increased by 3.6% to 3,978 trillion cubic feet of natural gas. Significant increases in gas production are now hampered by a lack of pipelines. Once the necessary transportation infrastructure is built, U.S. gas exports could double as early as 2030.
While U.S. companies are increasing LNG supplies to the global market, European countries are reducing their purchases. In recent days, the pace of gas underground storage (UGS) filling in Europe has fallen to its lowest level since 2011. The reason lies in the high level of UGS filling - almost 95%, 9.7% above the historical average for the end of September. Approaching the 100% level may further reduce gas demand and put pressure on prices.
The nearest target for natural gas price correction is the level of 2.85. In case of a favorable news background, a new wave of price growth may start from there, but the bulls are unlikely to be able to trigger it in the coming days.
Consider the following trading strategy:
Sell gas not higher than the 3 level. Take profit - 2.85. Stop loss - 3.05.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.