Where are Natural Gas prices headed?

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July 22, 2019 11:47am NYSE:UNG

  • Natural gas fell in the aftermath of Hurricane Barry
  • The lowest injection since early April did not cause a rally
  • When a market moves lower on bullish news, it is a sign of underlying weakness

Natural gas can be the most volatile commodity that trades in the futures market at times. The United States Natural Gas Fund, LP (UNG) has net assets of around $325 million and replicates the price action in the natural gas market.

The price of the energy commodity rose as Hurricane Barry approached the Louisiana Coast two weeks ago. However, natural gas could not move north of $2.50 per MMBtu level to trigger buy stops above the level of critical technical resistance. In 2017 and 2018, the price found a bottom at just over $2.50. This year, the price had moved below that technical support turning it into resistance since April. The first recent sign of weakness in the natural gas market was the inability to move above $2.50 per MMBtu.

Natural gas fell in the aftermath of Hurricane Barry

The price of natural gas rose to a high at $2.489 on July 10 as the storm was heading for the Louisiana coast, home to natural gas infrastructure. The delivery point for NYMEX natural gas futures is the Henry Hub in Erath, Louisiana. On Friday, July 12, as Hurricane Barry was about to make landfall, the price of August futures closed at $2.458.

The weekly chart highlights that since Hurricane Barry did not cause extensive damage, the price of the energy commodity dropped. It was no surprise that by the close of business on Wednesday, July 17, the price settled at $2.31 per MMBtu. Both price momentum and relative strength were falling in neutral territory. Open interest moved slightly lower over the week as any longs looking for a rally on the back of the storm scrambled to exit the market as the price dropped. The most revealing event of the week in the natural gas market came on Thursday, July 18, when the Energy Information Administration reported weekly inventory data.

The lowest injection since early April did not cause a rally

Last Thursday, the EIA told the market that 62 billion cubic feet of natural gas flowed into storage as of the close of business on July 12. The injection was the lowest since the week of April 5. At the same time, at the end of last week, the market consensus for the week ending on July 19 was for an even lower injection of under 50 billion cubic feet.

The price of natural gas moved lower in the aftermath of the EIA data release. Natural gas posted a loss in five consecutive sessions last week, fell to a low at $2.242, and settled on Friday just above the low at $2.251 per MMBtu.

When a market moves lower on bullish news, it is a sign of underlying weakness

The EIA inventory data released last Thursday was far from bearish for the energy commodity. Above-average temperatures across densely populated areas of the US has increased the demand for cooling. However, the price dropped, which reveals the overall bearish tone of the natural gas market. When the price of an asset drops on bullish news, watch out.

The level of technical resistance for August futures stands at the June 20 low at $2.134 per MMBtu level. The price action in the natural gas futures market is likely to encourage speculative bears to push the price lower over the coming sessions. Natural gas is a market that always tends to surprise on the up and the downside. Tight stops are a good idea when it comes to long or short positions in the volatile commodity or related ETF or ETN products.

 

About the Author 

Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories.  Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.  Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.


United States Natural Gas Fund L.P. () was trading at $297.19 per share on Monday morning, up $0.02 (+0.01%). Year-to-date, has gained 11.81%, versus a % rise in the benchmark S&P 500 index during the same period.


This article is brought to you courtesy of ETFDailyNews.com.


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