This week has been a rollercoaster for the natural gas market, with Henry Hub Natural Gas Futures (NYMEX: NG) surging by 7% on Tuesday to reach new 7-week highs. The catalyst behind this bullish momentum was the anticipation of frigid weather in the upcoming week, promising heightened demand. However, the market swiftly relinquished these gains as optimism waned due to forecasts indicating a milder-than-usual winter following the imminent cold front.
Adding to the mix, the EIA revealed that gas inventories currently exceed the five-year average by 13%, and European gas storage facilities remain 85% full, signalling lower-than-usual demand. The next month’s weather forecasts are now a crucial factor, determining the extent to which excess inventories will be drawn down and influencing the price dynamics of the futures.
On the daily chart, a breakout from the descending channel resulted in the futures breaking through the multiple SMAs, signalling a bullish shift in sentiment. However, the 50-SMA (blue line) has recently crossed below the 100-SMA (orange line), which could be a potential signal of a retracement from the recent bullish run.
Resistance is established at $3.077/mmBtu, the 61.8% Fibonacci golden ratio, making the support at the Fibonacci midpoint a level of interest in the upcoming session at $2.915/mmBtu. If this support level gets broken down, the retracement could be sustainable toward $2.820/mmBtu, a support level backed by the 50-SMA and the 100-SMA, creating a psychological level that could be challenging to break down.
However, if support at $2.915/mmBtu holds, it could signal an unsustainable retracement, potentially due to profit-taking behaviour after the recent uptrend, which could open the door to a continuation of the bullish run back toward $3.235/mmBtu. If the bulls succeed in clearing this resistance this time around, the futures could trickle higher toward $3.404/mmBtu.
Volatility has been present in the natural gas market recently, with the futures giving back its generous gains from the Tuesday session. Support at $2.915/mmBtu could be the determining level in gauging whether the recent retracement could be sustained.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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