Key Pivot: How Long Will Natural Gas Hold at $2.50 per MMBtu?



Downward channel

Natural gas futures for May delivery have been trading within the downward channel since mid-February 2015. The tug of war between the bulls and the bears is swinging the prices between the upper and lower parts of the downward channel. The current volatility is driven by rising inventory and weather estimates.

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Key pivot

The current momentum is bearish for natural gas prices. The downward pressure might push gas to break the psychological support of $2.50 per MMBtu (British thermal units in millions). Gas prices hit this mark in April 14 and 15, 2015. The rising inventory and slowing demand from industrials will drive gas prices lower. In contrast, the cold weather estimates could push oil prices higher to the nearest resistance at $2.75 per MMBtu. Prices hit this level multiple times in March 2015.

Gas prices settled below their 20-day moving average of $2.59 per MMBtu on April 24, 2015. The downward channel signals that prices could trade between levels of $2.40–$2.70 per MMBtu in the near term. Gas prices continue to follow the long-term downtrend.

Natural gas ETFs—like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG)—leverage the performance of natural gas’ price movement. Lower gas prices impact even the largest natural gas producers like Anadarko Petroleum (APC), Apache (APA), and ConocoPhillips (COP). These companies have a natural gas production mix that’s greater than 40% of their total production. These companies account for 3.54% of the Spider Oil and Gas ETF (XOP).


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