By IFCMarkets
Natural gas prices hit nine month high on expectations warmer weather will increase fuel demand for power generation as cooling demand rises. At the same time the working gas storage is at record high for this time of year. Will natural gas continue rising?
The Energy Information Administration reported last Thursday net injections of natural gas into storage totaled 69 billion cubic feet (Bcf) in US last week ending Wednesday, compared with the 2011-15 average of 87 Bcf and last year’s net injection of 96 Bcf during the same week. Injections are down 238 Bcf in the last seven weeks compared to a year ago and the year-over-year storage surplus fell for the tenth consecutive week. However working gas stocks remain near record highs for this time of year: last Friday they were 79 Bcf above the 2011-15 maximum for this time of year of 2,962 Bcf. US natural gas production was flat at 80.6 Bcf per day with average total supply rising 1% during the report week due to 9% increase in imports from Canada. At the same time average consumption for the report week rose 2% with the increase driven by a 5% rise in consumption of natural gas for electric power generation. Yesterday natural gas futures jumped to their highest level since mid-September 2015 on forecasts of warmer than usual temperatures in much of the US through at least the end of this month. Warmer weather is likely to boost demand for the fuel as power generation is ramped up to meet higher cooling demand. Meanwhile US natural gas speculators boosted their net longs for a third consecutive week: speculators increased their bullish bets by 27431 contracts to 81821 in the week to June 14 according to the US Commodity Futures Trading Commission. Speculators are betting prices will rise as production eases and power demand picks up to absorb some of the record high amount of fuel left in inventories after a warm winter.
On the daily timeframe the NATGAS: D1 has been trading upward since the end of February. The price is edging higher from the support line of the uptrend after breaking above the long term resistance. It has risen above the last fractal high with the 50-day moving average MA(50) and the 200-day moving average MA(200) having formed the Golden Cross pattern as MA(50) crosses above the MA(200) from below. The Parabolic indicator has formed a buy signal. The Donchian channel is tilted upward indicating uptrend. The RSI oscillator is in the overbought zone which is a bearish signal. The MACD indicator is above the signal line and the gap with the signal line is rising. This is also a bullish signal. We believe the closing above the upper Donchian boundary at 2.769 will signify the continuation of bullish momentum. It can be used as an entry point for a pending order to buy. The stop loss can be placed below the fractal low at 2.569, confirmed also by the Parabolic signal. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop loss level (2.769) without reaching the order (2.569), we recommend cancelling the position: the market sustains internal changes which were not taken into account.
| Position | Buy |
| Buy stop | above 2.769 |
| Stop loss | below 2.569 |
Market Analysis provided by IFCMarkets