Natural Gas: Market Eyes Reversal With Higher Demand on the Horizon

The likelihood of hot temperatures ahead in the US and Europe could result in a sharp reversal in natural gas prices as the bottom-testing at $2 seems to be near completion.

Analysis of the movements by natural gas futures in the hourly chart indicates repeated attempts to test the significant support of $2 reached on Arp. 6 and Apr. 13, which has formed a double bottom that could generate a sharp reversal on Apr. 14 or during the upcoming week, as these attempts have confirmed strong buying support below this level.

Prices have constantly remained under selling pressure since Nov. 2022 as warm temperatures kept heating demand on the lower side during the entire winter season, and indicates that summer could witness more heating degree days in 2023.

According to reports from natgasweather.com, most of the U.S. will be comfortable the next 3 days with highs of 60s to 80s. Locally, hotter exceptions are Southwest deserts with highs of the 90s, while it would be cooler over the unsettled Northwest with highs of 50s. A weather system over the Southeast will bring heavy showers, with highs of the 70s. A cooler system will track across the northern U.S. Mon-Wed w/lows of the 20s-30s.

Last Friday, futures hit a new low of this season at $1.992 before starting a sharp reversal during this week.

On Wednesday, futures found it difficult to sustain above $2.245 and continued to slide again in anticipation of the announcement of a stock build-up on Thursday.

On Thursday, the inventory announcement of an injection of 25 bcf resulted in a steep slide to hit a low at $1.996 before closing the day at $2.013, which indicates a continuity of wild price swings to find a breakout above the immediate resistance of $2.222 on Friday, as it has already tested the bottom of this tight price range, between $1.992 to $2.358.

The current scenario of demand and supply seems to be in favor of the bears but could be a trapping zone as the cooling demand for natural gas during the summers will turn the scene in favor of the bulls if futures hold above the significant resistance of $2.444 during the upcoming week.

Technically, in the 1-hour chart, movements indicate the advent of a sharp reversal of approximately 10% as the formation of a bullish crossover is likely to complete within the next few hours, and futures are sustaining above the 9 DMA since the formation of a bullish hourly candle after the daily low of Apr. 13.

Moreover, on Thursday, the Biden administration approved the export of liquefied natural gas from the Alaska LNG project, a document showed, as the United States competes with Russia to ship natural gas from the Arctic to Asia.

Disclaimer: The author of this analysis does not have any position in natural gas futures. Readers should take a trading position at their own risk, as natural gas is one of the most liquid commodities in the world.