Buying natural gas with target at 4.000 on expected increase in cooling demand

Natural gas prices are declining. At the moment, the market is facing excess supply and limited demand, which pushes prices down. However, an upcoming summer heatwave and a possible increase in cooling demand could be short-term drivers for recovery. On Thursday, June 5, the opening price was 3.695.

In the US, gas prices remain under pressure from excess supply and weak domestic demand. Gas inventories rise faster than the five-year average, having reached 2.476 trillion cubic feet, 3.9% above the seasonal norm. Meanwhile, projected warming in the second half of June can boost demand for cooling, yet current temperatures are not enough to ramp up consumption significantly. 

The European market, on the contrary, is experiencing a supply shortage. Maintenance at Norway’s Kollsnes gas processing plant has limited exports, which supports futures prices. Norway accounts for about a third of the EU’s gas imports, so even short-term disruptions create serious tightness. Nevertheless, increased LNG availability due to weaker demand in China is helping to offset the deficit and is stabilizing the summer balance.

Globally, investment in the oil and gas sector is declining, which could affect the long-term supply outlook. The International Energy Agency forecasts investment in oil and gas production to decrease 6%, which would be the first drop in a decade, excluding the pandemic. Russia has concluded that developing a new gas distribution hub in Turkey is not viable, which limits opportunities of creating new export routes to Southern Europe.

Natural gas prices remain in the sideways corridor between support (3.50) and resistance (3.75) levels. The RSI and MACD indicators do not give clear signals, which points to the balance between buyers and sellers. Meanwhile, the moving averages EMA (20) and EMA (50) crossed on Thursday, signaling the possibility for further growth. 

However, if the temperature does not rise in the coming weeks and cooling demand remains soft, prices risk breaking through the lower boundary. In this case, the levels of 3.500 or even 3.450 may be tested.

Current recommendation:

Buy natural gas at the current price. Take profit – 4.000. Stop loss – 3.500.