US natural gas prices are actively testing the level of 2.3 from bottom to top, despite the start of the low demand season. At yesterday's trading session, the bears held this position, but the buyers are not willing to give up either. The improved fundamental background in the gas market supports further price growth, with the 38.2% Fibonacci level (2.35) as the next target after 2.3.
At the beginning of this week, US gas prices fell sharply due to concerns about the arrival of Hurricane Francine to the Gulf Coast. 3 out of 4 largest LNG export plants in the country are concentrated in this area. However, Reuters reports that plants in Louisiana have avoided the worst-case scenario, and the storm has largely passed them by. The Sabine Pass and Cameron projects continue to produce liquefied gas, albeit at reduced capacity.
In addition, the hurricane led to a decline in US gas production. According to LSEG estimates, the country's average daily gas output fell from 103.2 billion cubic feet to 102.2 billion. As the company's experts mention, this is due to the suspension of some gas fields because of bad weather. As a result, gas inventories in the US will be replenished slower than expected, which is of increased importance ahead of the start of the heating season.
Meanwhile, the Energy Information Administration (EIA) released an updated forecast for the US gas market. According to the latest estimates, gas production will drop from 103.8 to 103.4 billion cubic feet per day this year. This is due to a reduction in drilling by several producers after the collapse of gas prices to a 25-year low in March. Besides, domestic gas demand will rise from 89.1 billion cubic feet per day to 89.9 billion. The revised forecast is in favor of higher gas prices.
In the near future, another attempt by the bulls in the gas market to consolidate above the 2.3 level should be expected. An update of the 3-month highs may also be a boost to the 2.35 level.
Consider the following trading strategy:
Buy gas at the current price. Take profit 1 – 2.3. Take profit 2 – 2.35. Stop loss – 2.1.
This content is for informational purposes only and is not intended to be investing advice.
