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Whipsaw Action In Natural Gas (NG)

  • 3 mins read ●
  • Published:
natural gas market analysis 1

Key Points

  • A heat wave is expected to hit the US Southwest in the coming days, likely spiking NG demand.
  • EIA inventories are estimated to rise to 89 Bcf, above last week’s 84 Bcf.
  • 3.000 is the key level to watch in NG for the remainder of the week.

Market Overview

The natural gas (NG) market has been chaotic in the past three days. Up, down, up—traders have fought a stalemate in the 2.500 – 2.750 zone. Is a move in the offing, or is this just more consolidation?

If a directional move is coming, it will likely follow Thursday’s EIA storage report or Friday’s US NFP numbers. With June’s trade in full swing, it will be fascinating to see if NG begins to reflect traditional spring/summer seasonality or if it has gone rogue.

Heat Wave Expected In US

In the coming week, a heatwave is expected to hit the southwestern United States. Extreme temperatures are expected throughout southern California, Arizona, New Mexico, and Texas. Temperatures may approach record highs for this time of year, upwards of 100 degrees Fahrenheit.

The temperature spike will strain the power grids in heavily populated areas such as Las Vegas, Phoenix, Los Angeles, San Antonio, and Houston. This will increase natural gas demand to service the air conditioning requirements of businesses and residents. If the forecast is accurate, today’s 5.75% gas rally may begin a concerted run at 3.000.

Inventories On Deck

Thursday marks the weekly release of the EIA Underground Natural Gas Storage report. The report sparks short-term volatility as traders debate the current state of supply in the natural gas market. High supply is viewed as bearish; low supply is bullish.

Analysts estimate storage to come in at 89 billion cubic feet (Bcf), above last week’s 84 Bcf. Last week’s figure came in north of expectations and suggested that spring/summer seasonality was beginning to take hold in natural gas. Another significant supply build is likely to put bearish pressure on NG ahead of the developing US southwest heatwave.

Technical Outlook

Large daily ranges have defined this week’s action in NG. And, price has yet to pick a direction, exhibiting whipsaw action. At press time, the NATGAS CFD is in rotation around the point-of-control near 2.655. Is a breakout imminent? 

NATGAS CFD, Weekly Chart

For now, the jury is still out. But, price is back in bullish territory above the weekly 38% retracement at 2.604. The key number to watch in this market is the 3.000 threshold. Sellers have defended this level with vigor; if challenged again, bulk selling at this technical level is likely.

If you’re trading NG this week, be ready for the EIA storage report on Thursday and US Nonfarm Payrolls on Friday. Although NFP is not a traditional NG market driver, it can move the USD. In the event that NFP is a surprise, everything from the Dow to natural gas will be impacted.

Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.

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