U.S. gas prices, as expected, hit their 4-year lows in the range of 1.52-1.55. Here the cost of natural gas has formed a bottom, from which it has already pushed back by 20% over the last week. The negative trend in the U.S. gas market is not definitely over, but there are indeed enough preconditions for an upward correction. Within the current rebound, the bulls may well target the important level of 2.
As it often happens, the sharp change of price dynamics was caused by too one-sided positioning of market participants. According to Reuters, hedge funds and other major investors have sold more than 2 trillion cubic feet of natural gas contracts over the past 5 weeks. The rise in prices has forced traders to hastily close short positions, causing the cost of gas to receive even more incentive to rise.
Although gas price forecasts are gradually getting worse, they still anticipate a significant increase from current levels. For example, JP Morgan analysts expect the average price of natural gas in the U.S. to be $2.93 per million British thermal units this year. Gas will average $2.45 in the current quarter and $2.25 in the second quarter. Thus, even the minimum potential increase in quotations exceeds 20%.
Additionally, gas prices can be supported by the growth in demand. The European Commission recommended the EU countries to continue limiting natural gas consumption. However, now this policy is completely voluntary, as opposed to the 2022-2023 period. Previously, European countries had committed to reducing demand for natural gas by at least 15% compared to the five-year average. Now most officials consider these measures unnecessary given the passing of the peak of the energy crisis.
On the daily chart of natural gas, the RSI indicator has reversed upward and keeps rising, remaining far from the overbought zone. From a technical point of view, there are no obstacles for the price to move towards the level of 2.
Consider the following trading strategy:
Buy gas at the current price. Take profit - 2. Stop loss - 1.7.
Traders may 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.
