Traders are waiting for reversal after gas prices plunge

Natural gas prices in the U.S. make another attempt to stop the plunge. For a month and a half, gas became almost 40% cheaper, and the price came close to June lows. These conditions, complemented by the strongest oversold technical indicators for 10 months, attract more and more attention of the market participants. At current price levels, potential for further decline reduced sharply, while a rebound upwards has significant space for development.

Storage facilities in the U.S. and Europe started this winter with a record amount of gas reserves. However, low temperatures have an impact on gas reserves in European underground storage facilities, which have already fallen below 100 billion cubic meters (bcm). The withdrawal of gas from storage since the beginning of the heating season exceeded 11 bcm. The filling level of storage facilities reached 90%.

A similar situation takes place in Asia. Importers of gas, who waited for more favorable conditions to buy it, became more active. LNG prices in Asia fell to two-month lows, allowing less developed countries, such as India and Thailand, to enter the market. According to Bloomberg, South Asian companies have already struck several deals for January LNG supplies at less than $12 per million British thermal units (MBtu). This is the minimum contract price since August.

Previously, these countries were forced to cut purchases of gas due to global supply disruptions that led to record price increases. However, now LNG prices fell by more than 60 % compared to last year. This allowed gas price-sensitive South Asian countries to return to more environmentally friendly fuels instead of coal and petroleum products.

Yesterday, gas prices rose by 3%, giving the start of a full-fledged rebound. The upward signal will strengthen with the RSI indicator reversal from the oversold zone. The first target for the bulls will be the level of 2.5, where the lows of the 3rd quarter of this year are located.

The following trading strategy may be offered:

Buy gas at the current price. Take profit – 2.5. Stop-loss – 2.25.

Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.