Written By: Andy Hecht
Trading Natural Gas as the Season Changes
- The highest price since 2014 last November
- The lowest price since 2016 in August
- A technical break to the upside
- Trading natural gas as the season changes, and a note about the long-term prospects
- UGAZ and DGAZ for those who do not trade futures
The highest price since 2014 last NovemberLast November, as natural gas was entering the 2018/2019 time of the year when inventories decline, the price of the energy commodity exploded to the upside.
Source: CQGThe monthly chart highlights the price rise from a low at around the $2.70 level during the summer months to a high at $4.929 per MMBtu in November 2018. At the start of the withdrawal season, the total amount of natural gas in storage in the United States rose to only 3.247 trillion cubic feet, the lowest level in years. The low level of stockpiles, uncertainty over the weather and demand for heating over the winter months, and an early cold snap created a perfect bullish storm for the natural gas futures market. The price rose to the highest level since 2014 at the start of the 2018/2019 winter season.
The lowest price since 2016 in AugustThe November 2018 high ran into selling at just below the $5 per MMBtu level. The demand for natural gas last winter did not send the amount of the energy commodity in storage below the one trillion cubic feet level. At the end of last winter, stocks fell to a low at 1.107 tcf. However, the price started dropping in December and posted eight consecutive months of losses. Technical support for the natural gas market was at the $2.53 per MMBtu level, which was the low from February 2018. During the same month in 2017, natural gas fell to a bottom for the year at $2.522, so it appeared to put in a higher low. In February 2019, the trend seemed to continue as the low for the month was at $2.543 per MMBtu. However, in April, it moved through the 2018 and 2017 and kept on falling. In August natural gas futures found a bottom at $2.029 per MMBtu, the lowest level since 2016 when the price fell to $1.611 per MMBtu, the lowest level since 1998. A warm winter and high levels of inventories drove the price to the lowest level of this century.
A technical break to the upsideAfter the early August low in the natural gas futures market, a recovery got underway.
Source: CQGThe weekly chart illustrates that the low during the week of August 5 led to a rally that took the price higher in five of the last six weeks. The rally got some fuel as Hurricane Dorian approached the US in late August. Even though the storm did most of its damage in the Bahamas, the price of the energy commodity continued to gain. Another sign that natural gas was heading higher was that the inventory report from the EIA as of August 30 was bearish as the injection was higher than market expectations. When a market has reasons to move lower, and it continues to rise, it is a sign that the path of least resistance for the price is higher. The level of critical support at the 2017 and 2018 lows at $2.53 and $2.522 gave way in April 2019, and the support levels became technical resistance when the price of the energy commodity traded to just over the $2 level in early August. Last week, natural gas took out those levels in post-summer trading and rose to a high at $2.648 per MMBtu. The October futures contract settled the week at $2.614, not far below the high of the week and well above the level of resistance at $2.53.