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Bearish Momentum Could Push Natural Gas Prices to Fresh Lows

Gordon Kristopher

US Natural Gas Inventory Hits a Record 4 Trillion Cubic Feet

(Continued from Prior Part)

Trading range 

Natural gas futures contracts for December delivery are showing the emergence of an up-trending trading range. Prices were trading close to the key support level of $2.25 per MMBtu (British thermal units in millions) on November 19, 2015.

Gas prices have been trading within this range since November 2015. Natural gas inventories and weather have been swinging natural gas prices.

Support and resistance 

Mild weather and record inventories of 4 Tcf (trillion cubic feet) could drag natural gas prices lower. The next support for natural gas prices is $2 per MMBtu. Prices hit this level in October 2015. On the other hand, lower natural gas prices could boost consumption. The nearest resistance for natural gas prices is seen at $3 per MMBtu. Prices tested this mark in April 2015.

Goldman Sachs estimates that natural gas prices could average at $2.50 per MMBtu in 4Q15 and around $2.85 per MMBtu in 2016. The EIA (U.S. Energy Information Administration) estimates that gas prices could average around $2.69 per MMBtu in 2015 and $3 per MMBtu in 2016. The price chart and moving averages suggest that natural gas prices could trade lower.

Impact 

US natural gas producers such as Antero Resources (AR), ConocoPhillips (COP), Cimarex Energy (XEC), and Comstock Resources (CRK) are affected by lower natural gas prices. These companies’ natural gas production mixes are greater than 49% of their total productions.

Volatility in the energy market also affects ETFs such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ) and the PowerShares DB Energy ETF (DBE).

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