During the transition of the main trades from the May to June natural gas contract, its price made a new attempt to break above the level 2. Once again, the bulls' efforts were mostly futile, and the price promptly returned to the three-month range of 1.5–2. An update of the February lows isn’t expected now, but there are still no necessary conditions for a stable upward trend. The most probable option now is the continuation of the gas quotations pullback to the middle of the range, closer to the level of 1.85.
As the heating season in the US has come to an end, investors stepped up selling of gas contracts. Over the past week, the net short position in the gas market increased from 310 to 483 billion cubic feet. Market sentiment remains pessimistic, especially since the fuel surplus has stopped shrinking. In March it exceeded 40% of the 10-year average, then fell to 38% and now remains at the same level.
JP Morgan analysts in a new report on the global natural gas market forecast a fuel surplus through the end of this decade. According to their estimates, gas production will increase at an average annual rate of 2% and will reach 4.6 trillion cubic meters by 2030. As a result, the global surplus will exceed 60 billion cubic meters. Growing gas production in the US and the Middle East will keep the market in a state of structural oversaturation.
Weak demand also contributes to the persistence of gas oversupply. While gas prices remained low, Asian consumers actively increased imports. But by now, the cost of gas has risen by almost 30% from its winter low, which leads to a reduction in purchases. Kpler estimates that India will import 16% less LNG in April than in March. Demand from China will fall by 7.5%.
The vicinity of level 2 provides a good opportunity to open short positions on US gas. The nearest target is the level of 1.85.
The following trading strategy can be suggested:
Sell gas around the level of 2. Take profit — 1.85. Stop loss — 2.1.
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.
