Correction in natural gas prices is about to end

Natural gas prices in the US have been in a correction since the end of last week, pulling back from a three-month high just above the level of 3. Within the current downward wave, the bears have already reached all targets except one — the 61.8% Fibonacci level (at 2.53). Approaching this level could be a great opportunity to take profits on short positions and push the price up. Natural gas buyers will expect prices to return to the level of 2.72.

Besides being technically overbought, the natural gas price has also fallen due to hurricane Milton reaching the country's coast. Yesterday, the disaster hit Florida, leaving many households and businesses with no power supply. Demand for electricity and the fuel to generate it will remain subdued until infrastructure is restored. However, the major damage has already been done, and energy consumption will gradually go back to normal.

Reuters analysts say that even a very intense hurricane season will not hinder the growth of natural gas consumption in the United States. According to data for the first nine months of 2024, demand for this kind of fuel in the country increased by 5%, and 55.6 million megawatt-hours of electricity were generated by gas plants. Only Mexico, Qatar and Thailand showed faster growth rates in similar energy segment and period of time. In absolute terms, US power plants are the world leaders in terms of gas demand growth.

At the same time, experts at the Energy Information Administration keep pointing out the first decline in the US gas production since 2020. The spring price collapse is still putting pressure on American companies, and their daily production may fall from 103.8 to 103.5 billion cubic feet by the end of the year. Combined with rising domestic demand and expanding LNG exports, the balance in the market may shift toward higher costs for natural gas.

The Stochastic indicator on the daily natural gas price chart has already entered the oversold zone and may soon signal an upside reversal. The short-term target for the bulls will be the level of 2.72.

The following variant of the trading strategy can be suggested:

Buy natural gas when the price falls to the level of 2.53. Take profit – 2.72. Stop loss – 2.44.