Natural Gas Prices Might Test Resistance of $2.75 MMBtu



Declining demand

Weather estimates in the northern states are expected to be warm. However, a cooler climate is expected in the western and Midwest parts of the US in the second half of April 2015. Since cold weather is almost over, the demand estimates due to weather conditions have a low impact on gas prices.

Natural gas flows to industrials and electrical power plants saw a day-over-day increase. However, consumption from residential and commercial fell during the same period. The EIA’s (U.S. Energy Information Administration) monthly drilling productivity report shows that gas production from the major shale plays will increase by 122 thousand cubic feet per day in May 2015—compared to April 2015. The supply is continuously increasing and putting pressure on gas prices.

The EIA reported that weekly gas stockpiles rose to 1,539 Bcf (billion cubic feet) from 1,476 Bcf for the week ending April 10. This is 4.3% more than the previous week and 81% more than the figures last year. These figures are 9.5% lower than the five-year average of 1,684 Bcf.

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Increasing production and rising inventories will continue to put pressure on gas prices. Prices could test the support of $2.50 per MMBtu (British thermal units in millions). Prices hit this mark on April 10 and 14 in 2015. In contrast, short covering and demand from power stations switching to natural gas could push gas prices to the nearest resistance of $2.75 per MMBtu. Prices hit this level in March 2015.

Natural gas prices are trading above their 20-day moving average of $2.67 per MMBtu and below their 50-day moving average of $2.74 per MMBtu. The RSI (relative strength index) continues to be in overbought territory. Gas prices might fall from these levels.

Oil and gas ETFs like the Spider Oil and Gas (XOP) and the Energy Select Sector SPDR ETF (XLE) fell marginally in yesterday’s trade despite rising natural gas prices. Oil and gas producers like Cabot Oil (COG), Antero Resources (AR), and Exco Resources (XCO) have a natural gas production mix greater than 85% of their total production. They account for 3.08% of XOP. The oil producers’ revenue increases with higher oil prices.


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