Gas prices move lower as spring approaches

U.S. gas prices have retreated nearly 10% from last week's highs and are now attempting to stabilize around the 4 level. This level aligns with the Fibonacci retracement level of 23.6%, and further “bears” may target the 38.2% level (3.82). With spring approaching, the enthusiasm among natural gas buyers may cool, potentially replacing February's upward trend with a downward movement in March.

According to LSEG, warmer temperatures across much of the U.S. have enabled companies to set a two-week record for gas production, reaching 104.8 billion cubic feet per day. The milder weather has allowed several frozen wells to resume operations. Meanwhile, demand for natural gas is expected to decline from 127.3 billion cubic feet per day to 119.1 billion cubic feet per day next week. Additionally, operational disruptions at the Cameron LNG plant have further reduced demand. Yesterday, the plant cut its gas consumption by a third.

The European gas market is also experiencing a pause in its rally as spring approaches. Prices for summer gas deliveries are now cheaper than contracts for next winter. The European Union has confirmed plans to grant member states more flexibility in gas purchases, moving away from the strict requirement of filling storage facilities to 90% by November 1. In response, analysts at Energy Aspects note that hedge funds are closing long positions on natural gas en masse.

Meanwhile, Reuters experts are skeptical about forecasts of a sharp rise in gas demand in Asia. They point out that gas distribution and storage infrastructure in Asia remains underdeveloped and costly to build. Natural gas requires specialized pressurized tanks and pipelines, making it less attractive for many Asian power companies. As a result, most prefer to increase power generation using coal and renewable energy sources rather than invest in new gas-fired power plants.

Technical indicators such as the RSI and Stochastic confirm the downward trend in gas prices. The nearest target for sellers is 3.82, with a further potential decline to 3.65.

Trading Strategy Recommendation:

Sell natural gas near the 4 level. Take Profit 1: 3.82. Take Profit 2: 3.65. Stop Loss: 4.25