The Henry Hub Natural Gas Futures (NYMEX: NG) experienced a dip of nearly 20% this week, currently hovering around a two-week low. This decline is attributed to smaller-than-anticipated storage draws, and weather forecasts signalling reduced demand and increased output due to the approaching warmer weather.
Thursday’s report from the EIA revealed an inventory draw of 154 bcf, falling short of the consensus for a 165 bcf draw. The outlook for warmer weather and diminishing heating demand further contributed to the downward price pressure. Additionally, despite the draw, gas in storage remains 11.2% above the seasonal norm.
These factors may continue to influence the futures in the upcoming sessions, but a noteworthy technical pattern could inject some intriguing dynamics into the price action.
Technical
On the 4H chart, a double-top formation led to a prolonged downturn, where a falling wedge emerged. The RSI trades close to oversold conditions, leaving the possibility for a bullish breakout from the falling wedge.
Support is established at the 78.6% Fibonacci retracement near $2.262/MMBtu and could be the pivot point buyers are looking for to catalyse the breakout. If the price remains above this level, a breakout could lead to a retest of the 61.8% Fibonacci golden ratio at $2.786/MMBtu. The 100-SMA (orange line) and 25-SMA (green line) could then offer resistance, standing in the way of the $2.964/MMBtu level.
However, the downtrend could continue if the futures fall below $2.626/MMBtu. Support at $2.559/MMBtu and $2.492/MMBtu could be potential levels of interest to the bears, with a psychological demand zone at $2.444/MMBtu offering neckline support.
Summary
Natural gas futures are trading at two-week lows following a smaller-than-expected inventory draw, and weather forecasts suggest warmer weather in the US, which could weigh on demand. However, a bullish breakout is not off the cards with oversold RSI conditions and a falling wedge in play.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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