Natural Gas: Short Squeeze Likely Before Short Week Wraps up
Satendra Singh | Jan 05, 2023 19:31
This week's natural gas futures action indicates that the commodity could continue to experience wild price swings during the first two weeks of 2023.
A steep fall during the last three weeks of December 2022 from $7.108 pushed the natural gas futures into the oversold territory. But Wednesday's close after hitting significant support confirms a thick presence of bulls below $4.104.
This level has historically provided strong support since the last weeks of Aug. and Dec. 2021 and Jan. 2022. Still, a breakdown was seen in mid-December 2018 amid a tariff trade war between the U.S. and Russia.
On the one hand, a European cap on gas prices starting in Feb. 2023 could keep the lid on natural gas prices, but still, the natural gas price cap efficacy is yet to be proved. Those measures could bring natural gas prices to normalcy in the first half of 2023.
On the other hand, changing weather patterns, changing demand-supply, and geo-political equations could test the efficacy of this price cap during the upcoming weeks.
Europe could continue to import liquefied natural gas to rebuild gas inventories once this winter ends, propelling natural gas prices during the second quarter of 2023.
In the weekly chart, a sustained move above $4.451 could propel volatility -- especially after the inventory announcement on Thursday.
Analyzing the moves of natural gas since Nov. 2018, I find a decisive zone for natural gas futures between $3.517 - $4.564.
A breakout above this or a breakdown below this range provides a definite long-term directional trend for natural gas futures.
Nobody knows the next move by the most uncertain commodity in the world as the continuity of selling pressure raises doubts over the support due to cold weather conditions, currently prevailing in most parts of the U.S. despite warm weather announcements.
Undoubtedly, a gap-up or gap-down will need confirmation by a sustainable move by natural gas futures below or above a particular price during the upcoming week.
Finally, despite the recent price decline from its 2022 peak, I conclude that natural gas futures could remain bullish during 2023 as the price is still above the 200 DMA in the weekly chart.
Disclaimer: The author of this analysis does not have any position in Natural Gas futures. Readers are advised to take any position at their own risk; as Natural Gas is one of the most liquid commodities of the world.
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.