US natural gas prices broke through the downtrend line at the end of Wednesday's trading session. Prices returned to mid-September levels, prompting bears to take profits and close short positions. Thanks to yesterday's buying, gas prices reached the first rebound target at the 23.6% Fibonacci level (2.42). The bulls' attention now turns to the 38.2% Fibonacci level (2.53), which can be reached in the next few days.
Jay Stevens, analyst at AEGIS Hedging, believes that the recent wave of falling gas prices is not entirely justified. Although October in the US could be the warmest in 20 years, market participants are underestimating the potential increase in demand for fuel in the event of sudden frosts. Stevens estimates that gas prices should return to $2.8 per million British thermal units. Buying back is recommended if prices fall below last heating season's average of $2.52.
Even if the warm weather continues in the US, the development of LNG exports will increase gas consumption. The largest company in the US gas industry, Cheniere Energy, has forecast a 50% increase in demand for liquefied fuels in China by 2040. These expectations are based on growing energy consumption in the Asian country, a policy of converting power plants from coal to gas, and large-scale infrastructure development.
Another source of increased gas demand in Asia, according to Reuters experts, is freight transport, which uses LNG as a fuel. In the first half of 2024, sales of such trucks in China will double to almost 110,000 units. The impact on gas consumption could be even greater in India, where the authorities have set a target of converting a third of the total transport fleet to gas by the early 2030s. Rising consumption is good for the cost of gas.
The RSI and Stochastic indicators on the daily chart of gas have exited the oversold zone, confirming the reversal of the upward movement. A break through the 2.53 level will open the way to the next upside target at 2.62.
Consider the following trading strategy:
Buying gas at the current price. Take profit - 2.53. Stop loss - 2.23.
This content is for informational purposes only and is not intended to be investing advice.
