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Natural Gas Could Test the Key Support of $2.50 per MMBtu

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Dec. 4 2020, Updated 10:52 a.m. ET

Downtrend channel

NYMEX-traded natural gas futures for May delivery are trading in a downward channel. Prices have been trading within this channel since mid-February 2015. Natural gas prices had a gap down opening on April 20, 2015—led by the consensus of increasing supplies and inventory. Massive gas production and warm weather forecasts acted as a catalyst and drove the prices to the nearest support.

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Key support and resistance

The key support level for natural gas is seen at $2.50 per MMBtu (British thermal units in millions). Prices hit this mark multiple times in April 2015. Record level inventories and growing supply estimates will put pressure on the gas prices. In contrast, resistance is seen at $2.75 per MMBtu. The resistance is formed by the highs of March 26 and 27. Demand from electric power plants and renewed demand from power plants switching from coal to natural gas would support the gas prices.

Natural gas prices are trading below their 20, 50, and 100-day moving average of $2.63, $2.74, $2.94 per MMBtu, respectively. May natural gas futures’ volume declined by 16,161 contracts from the previous day. The natural gas prices are in bearish momentum. The current momentum could push gas prices to the next nearest support. The consensus of rising inventory and the EIA’s (U.S. Energy Information Administration) weekly natural gas report due on April 23, will have a negative impact on gas prices. However, the RSI (relative strength index) is at 43 levels. A level of 30 is considered “oversold” and 70 is considered to be in “overbought” territory. Prices tend to increase from oversold levels and vice versa.

Lower natural gas prices also impact oil and gas producers’ margins like WPX Energy (WPX), Chesapeake Energy (CHK), and Gulfport Energy (GPOR). These stocks have a natural gas production mix greater than 68% of their total production. They account for 3.31% of the the Spider Oil and Gas (XOP). They also affect oil and gas ETFs like the United States Natural Gas Fund LP ETF (UNG).

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