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Will Natural Gas Prices Hit the Next Resistance?

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Natural gas price action

NYMEX-traded natural gas futures for July delivery are trading near the key resistance of $2.90 MMBtu (British thermal units in millions). Gas prices have been fluctuating between $2.60 and $3 per MMBtu for the past month. Rising inventory estimates and the warmer weather forecast are swinging natural gas prices.

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Key resistance

The consensus of increasing consumption due to warmer weather and supply disruption due to the tropical storm could narrow the long-term supply and demand gap. This could support natural gas prices. In the short term, the next resistance for natural gas prices is at $3.20 per MMBtu. Natural gas prices tested this mark in January 2015. In contrast, estimates of a rising stockpile could drag natural gas prices lower. The key support for natural gas is seen at $2.50 per MMBtu. Gas prices hit this mark in April 2015.

The technical pattern suggests that natural gas prices could trade between $2.50 and $3 per MMBtu in the near term. Natural gas prices could average around $2.93 per MMBtu in 2015 and $3.32 per MMBtu in 2016, according to estimates from the EIA (U.S. Energy Information Administration). The 14-day RSI (Relative Strength Index) is in overbought territory. Gas prices tend to fall from these levels.

The performance of the ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG) are positively impacted by higher natural gas prices. Oil and gas producers include Occidental Petroleum (OXY), Carrizo Oil and Gas (CRZO), and EOG Resources (EOG). Combined, they account for 2.88% of the Spider Oil and Gas ETF (XOP). Their production portfolios have a 41% natural gas production mix.

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