Natural gas futures have experienced a collective 8% decrease in just two trading days following a change in direction for the long-depressed fuel market.
However, charts indicate that despite this decline, the market is still under the influence of bullish sentiments, as a new front-month futures contract takes effect, and market participants anticipate a weekly storage update.
During Wednesday’s session, the natural gas contract for July expired on the New York Mercantile Exchange’s Henry Hub, resulting in a reduction of the volatility that had impacted trading over the past 48 hours.
Replacing it as the front-month contract from Thursday onward is August gas, which has been identified as the most actively traded contract by Investing.com due to a significant portion of the daily trading volume transitioning to that contract.
The price of August gas dropped by 12.1 cents, or 4.3%, settling at $2.668 per mmBtu (metric million British thermal units) at the end of Wednesday’s session. This decline adds to the previous day’s decrease of 3.6%.
After a remarkable rally of nearly 25% over the past three weeks, this two-day slide puts natural gas on track for a weekly decline exceeding 6%.
Market Analysis Indicates Bullish Control
According to Sunil Kumar Dixit, chief technical strategist at SKCharting.com, the charts demonstrate that the upside potential for gas prices remains intact.
Dixit identifies support levels for gas ranging from the 50-day Exponential Moving Average (EMA) at $2.47, to the Daily Middle Bollinger Band at $2.49, and the 100-day Simple Moving Average (SMA) at $2.38.
He asserts, “As long as these support areas are not breached, the recent upward trend will likely resume, with the initial target set at the psychological barrier of $3, followed by the 100-month SMA of $3.25.”
Prior to the weekly update on U.S. gas storage by the Energy Information Administration (EIA), gas prices experienced a two-day consolidation.
Investing.com’s consensus of industry analysts predicts that U.S. utilities added 83 billion cubic feet (bcf) of gas to storage last week. In the preceding week ending on June 16, utilities added 95 bcf to storage.
The estimated injection of 83 bcf for the week ending June 23 is anticipated to be slightly higher than the 81 bcf build seen during the same period last year and the five-year average increase of 80 bcf.
If these estimates are accurate, total U.S. gas inventories will reach 2.811 trillion cubic feet (tcf), marking a 25.5% increase compared to the same week last year and approximately 14.9% above the five-year average.
A Promising Month for Natural Gas
The natural gas market has seen an intriguing period, with bulls managing to maintain a positive trajectory for most of the month.
Gas futures are on track for their strongest month in almost a year, with an impressive gain of nearly 18% in June. The last time the market experienced a more significant monthly rally was in July 2022, with a gain of 46%.
Although summer temperatures have not reached their peak across the country, cooling demand is gradually rising, particularly in Texas. This realization within the industry suggests that higher price lows may become more common than new bottoms. The lowest point reached by Henry Hub’s front-month contract this week was $2.647, compared to the low of $2.136 seen at the beginning of June.
Refinitiv, the data arm of Reuters, released indicators on air-conditioning demand on Thursday, revealing approximately 65 Cooling Degree Days (CDDs) during the previous week, which is close to the 30-year average of 70 CDDs for that period.
CDDs are used to estimate the demand for cooling residential and commercial properties and measure the number of degrees by which the average temperature of a day exceeds 65 degrees Fahrenheit.
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