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Natural Gas Prices Are Trading within a Channel

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Jun. 18 2015, Published 9:57 a.m. ET

Trading range

July natural gas futures are trading within a channel. Gas prices have been fluctuating between $2.60 and $3 per MMBtu (British thermal units in millions) for over a month. The consensus of an increasing stockpile and mild weather estimates are driving natural gas prices.

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Resistance and support

The current momentum could drive natural gas prices in either direction. The estimates of declining production could push natural gas prices higher. The key resistance for natural gas prices is seen at $3.20 per MMBtu. Prices hit this level in January 2015. In contrast, the consensus of increasing inventories might push natural gas prices lower. The next support for natural gas is seen at $2.50 per MMBtu. Prices tested this level in April 2015.

In the short term, the trading range suggests that natural gas prices could fluctuate between $2.50 and $3 per MMBtu levels. BNP Paribas SA forecasts that natural gas prices could average around $3 per MMBtu in 2015. The RSI (Relative Strength Index) is in overbought territory. Natural gas prices could fall from these levels.

ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG) are affected by declining natural gas prices. They also impact energy producers like Occidental Petroleum (OXY), Concho Resources (CXO), and EOG Resources (EOG). Combined, they account for 2.78% of the Spider Oil and Gas ETF (XOP). Their production portfolios have a 41% natural gas production mix.

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