After some choppy price action during the first week of February, natural gas found solid support at the commodity’s 2011-2013 high of 4.578, a level last reached towards the end of December last year. Price rallied from this level, climbing nearly 40% to last week’s highs at 6.37. The rally came as temperatures remained well below average in the U.S., driving higher than normal demand for the commodity.
The market reasserted its authority over the weekend however, with Monday’s natural gas session gapping sharply down from Friday’s close and opening well within the aforementioned choppiness at 5.141. A rough three days for natural gas bulls has seen further decline, and the price of natural gas is once again touching 4.57. As-yet unable to close below this highly significant level, price hit lows of 4.53 during Tuesday’s trading and today’s low currently stands at 4.48. The question now is, “Will the level hold and close the weekend gap-down, or is the recent action a sign of weakening demand for natural gas?”
Price action over the next few days will offer insight into the answer. The U.S. Energy Information Administration (EIA) will release its natural gas weekly update tomorrow, which will offer up some volatility in the market. A bearish report will likely catalyze a close below the aforementioned support/resistance and, in turn, suggest further declines heading into March. New reports of warm weather throughout the spring suggest that the demand for natural gas might dip, which supports this bearish bias. On the other hand, a bullish report will strengthen the current significant level, and may drive the price of natural gas up, initially toward Monday’s open at 5.20 and, beyond that, the 5.40-5.60 range.
All said, the combination of a key historic price level and a surprise in the EIA report could serve to decide the medium term direction of the natural gas market.
To contact the reporter of this story: Samuel Rae at firstname.lastname@example.org