Prospects of trade talks push gas prices back up

US natural gas prices hit a two-month low on Wednesday, dropping below the 3.35 level. However, the trading session ended with strong dip buying, which resulted in a bullish engulfing pattern on the daily chart. The six-month uptrend line is providing solid support, signaling high odds for a further rebound in gas prices. Bulls are now eyeing the 3.9 level as their next target.

Yesterday's surge in market optimism was primarily fueled by Donald Trump's announcement to pause import tariffs for countries initiating trade negotiations with the US. According to Reuters analysts, the American president will likely demand that European and Asian countries reduce their trade surpluses with the United States. Energy resources—oil, gas, and coal—could be key to achieving this goal. This move may boost US exports of gas, tightening domestic supply and propping up prices.

At the same time, US gas production has started to decline after hitting record highs in March. According to LSEG estimates, just 103.4 billion cubic feet of gas was extracted on Wednesday, marking a six-week low. The decline comes as tumbling oil prices force producers to scale back drilling operations across major shale plays in Texas, New Mexico and North Dakota. Much of the gas produced in these states is a byproduct of crude oil extraction.

The surge in data centers across the US could further tighten the balance between natural gas supply and demand. According to a new report from the International Energy Agency (IEA), electricity demand from data centers is set to double by 2030. Unlike solar and wind power, which can’t always guarantee a stable energy supply, data centers require consistent, reliable electricity. The IEA suggests that the industry will increasingly turn to natural gas to meet its power generation needs.

The Stochastic indicator lines are approaching a crossover near the oversold zone, confirming a buy signal for natural gas. The near-term target sits at the 3.9 level.

Consider the following trading strategy:

Buy gas at the current price. Take profit – 3.9. Stop loss – 3.45.