Because home heating is the primary use of Natural Gas, with a secondary use in power generation in the summertime to run air conditioners, the price has historically fluctuated with the seasons.
The historical pattern has been a trough in late summer or early autumn, a rally on anticipation of the start of US home heating season (November 1) a peak in the late winter just before the end of US home heating season (March 31) and then a decline through the spring and early summer.
Sometimes gas can pop in early summer if it looks like a hot one, and can have the occasional spike if a big hurricane gets into the Gulf of Mexico and threatens offshore production facilities.
Trading through last year’s brutal winter and cool summer has provided a classic example of the historical seasonal pattern in Natural Gas.
After base-building between June and November of 2013, the early arrival of winter sparked an initial leg up in November. The polar vortex that put much of North America into the deep freeze sparked another big rally in January and February but once the end of winter came into sight, the price tumbled.
NatGas stabilized through the spring but took another tumble in June and July when it became clear that it was going to be a cool summer with low cooling demand.
For the last two months, Natural Gas has been base building in the $3.70 to $4.05 range. Oversold conditions have eased and the RSI has highlighted the change in momentum.
Today, Natural gas has broken out of its base, clearing $4.05 which may become new support followed by $4.00. The RSI breakout from a downtrend confirms an upturn in momentum just as the historically most favourable time of the year for natural gas arrives.
Over time, upside resistance could be tested near $4.35 (23%) or $4.75 (38%) both Fibonacci retracement levels.
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