Gas prices fail to reverse upwards

US natural gas prices attempted to break the monthly downtrend both last and current week. However, the highest level the gas buyers reached was 2.3, after which the price quickly pulled back to the initial positions. The bears continue to hold the gas market initiative, so the price growth can be considered as an interesting opportunity to open short positions. In this case, the target will be the level of 2.

The short-term momentum of gas prices growth was driven by the return of the Freeport LNG plant to normal operation after Hurricane Beryl. However, market participants do not expect a significant change in the supply and demand situation. US gas reserves remain very large, and LNG exports will be under the risk of decline until the hurricane season ends in mid-autumn.

According to the latest report from the US Energy Information Administration (EIA), gas demand in the country has increased due to low prices. By the end of the heating season, US gas reserves were 671 billion cubic feet (36%) above the 10-year seasonal average. By mid-July, the surplus had declined to 479 billion cubic feet (17%). Nevertheless, the fuel surplus will not be completely eliminated until at least the spring of 2025.

US gas production remains high, while LNG producers regularly struggle to ramp up exports. According to the EIA estimates, US gas inventories will no longer be able to recover by the beginning of the next heating season in October. As a result, gas prices will remain low throughout the fall and winter. In addition, only LNG exporters and power plants are experiencing an increase in gas consumption, while other industries show no rise in demand.

An increase in gas prices to the level of 2.2 may be a good opportunity for selling. The level of 2 now seems more achievable than a breakout of prices above the level of 2.3.

The following trading strategy can be suggested:

Sell gas when the price moves up into the 2.15–2.2 range. Take profit — 2. Stop loss — 2.3.