U.S. gas prices continue to correct

19 October 2023 185
U.S. gas prices continue to correct

Natural gas prices in the U.S. after reaching the highest levels in 9 months continue a corrective pullback. The price is getting closer to the important level 3, where the confrontation between the bulls and bears is sure to escalate. From the technical point of view, the drawdown may deepen to the range of 2.7–2.85. There is an uptrend line there, from which the gas price is likely to turn upward. But until then, the initiative remains with the sellers of gas.


The management of Chevron and union workers at LNG facilities reached an agreement, so the second round of strikes was canceled. As the union representatives said, it is now possible to put an end to the disagreement. According to Chevron's statement, the company has made real compromises with the employees of its facilities. Thus, the labor agreement was renegotiated and the planned strike was called off. As a result, fears over LNG supply disruptions in the global market have eased.


At the same time, natural gas production in the U.S. continues to increase. According to the EIA’s estimates, by the end of 2023, gas production in the country will increase by 5%, and in 2024 — by another 2%. First of all, gas production will increase in the Permian Basin — by 11% this year and by 6% next year.


EIA analysts believe that the main reason for the growth of gas production is the high activity of oil producers. Gas is often a by-product of oil production. EIA representatives also pay attention to the improvement of well drilling technology. Over the last 15 years, the average length of wells in the U.S. has increased almost 2.5 times. This allows to boost hydrocarbon production even with the reduction of the number of active drilling rigs.


The RSI indicator continues to decline after leaving the overbought zone. This increases the chances that the correction in gas prices will continue. If level 3 is broken from the top to the bottom, the correction could accelerate and quickly reach the target range of 2.7–2.85.


The following trading strategy can be suggested:


Sell gas when the price is falling below level 3. Take profit — 2.85. Stop loss — 3.2.


Traders can 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.

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