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Natural Gas: Are the Bulls Taking Charge Again?

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Natural Gas: Are the Bulls Taking Charge Again? PART 1 OF 5

Is Natural Gas Turning Bullish?

Natural gas prices

In the past five trading sessions, natural gas (UNG) (BOIL) (FCG) June futures rose 2%. On May 10, 2017, natural gas prices rose 2% and closed at ~$3.29 per MMBtu (million British thermal units). Natural gas rose due to the expectation of cooler weather.

Is Natural Gas Turning Bullish?

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During the same period, the Energy Select Sector SPDR ETF (XLE) rose 0.9%, while the S&P 500 Index (SPY) (IVV) (VNN) (SPX-INDEX) rose 0.6%. US crude oil (USO) prices fell ~1% in the trailing week. Energy accounts for 6.6% of the S&P 500 Index.

The S&P 400 Midcap 400 Index (IVOO) (MID-INDEX), which has 3.4% exposure to the energy sector, rose 0.6% during this period. Meanwhile, the Dow Jones Industrial Average fell 0.1% between May 3 and May 10. Energy accounts for 6.4% of the Dow Jones Industrial Average Index (DIA) (DJIA-INDEX). The FTSE 100 Index (UKX-INDEX) (EWU) rose 2.1%, while the CAC 40 Index (PX1-INDEX) (EWQ) rose 1.9% during this period. Oil and gas companies account for 14.1% of the FTSE 100 Index and 11.6% of the CAC 40 Index.

EIA expects a slowdown in natural gas demand

In its Short-Term Energy Outlook report released on April 18, 2017, the EIA (U.S. Energy Information Administration) projected that natural gas could account for 34% of total electricity generation in the US this summer. Last year, it accounted for 37% of total electricity generation during the summer.

The EIA also forecast that total electricity generation this summer could be 2.4% below last summer’s level. Mild summer temperatures could reduce cooling degree days 11% from the historic high set in 2016.

On May 10, active natural gas futures were 28.5% above their 2017 low of $2.56 per MMBtu on February 21, 2017. When securities rise more than 20%, they’re technically considered to have entered a bull market. However, mild weather and rising oil rigs could be a concern for natural gas prices.

Key moving averages

On May 10, 2017, natural gas futures for June delivery were trading ~1.8% above their 100-day moving average and 1.6% above their 20-day moving average. On May 10, 2017, natural gas futures moved above their 20-day and 100-day moving averages. On May 1, 2017, natural gas’s 50-day moving average crossed above its 200-day moving average—known as a “Golden-Cross” in technical analysis. It indicates strong bullish sentiment.

Series focus

In this series, we’ll analyze how fundamental drivers like the rig count, natural gas inventories, and the US dollar impact natural gas prices. We’ll also discuss what the natural gas futures forward curve might be indicating.

In the next part, we’ll discuss the oil rig count.

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