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Why Natural Gas Prices Could Hit New Lows


Jul. 9 2015, Updated 10:06 a.m. ET

Natural gas prices fall in the last four days

August natural gas futures contracts fell more than 4% in the last four trading sessions and settled just above the key support level of $2.70 per MMBtu (British thermal units in millions) on July 7, 2015. The massive production consensus and widening supply-demand gap could put more pressure on natural gas prices. Rising gas stocks will be the key catalyst for natural gas prices this week.

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Key pivots

The bearish momentum could drag natural gas prices lower. Oversupply factors could see natural gas prices test the key support of $2.50 per MMBtu. Prices hit this mark in April 2015. In contrast, rising demand from electric power plants might support natural gas prices. The important resistance for natural gas prices is seen at $3 per MMBtu. Prices hit this mark in May 2015.

The natural gas price chart suggests that prices could fluctuate between $2.50 MMBtu and $3 MMBtu in the near term. The EIA (U.S. Energy Information Administration) estimates that natural gas prices will trade below $3 per MMBtu in July 2015. It projects that gas will average around $2.97 per MMBtu in 2015 and $3.31 per MMBtu in 2016. Natural gas prices are below their 20 and 50-day moving averages.

The performance of ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG) are impacted due to long-term lower natural gas prices. This also adds pressure to gas producers’ margins like Rex Energy (REXX), QEP Resources (QEP), and Contango (MCF). Combined, they account for 2.93% of the Spider Oil and Gas ETF (XOP). These companies have a natural gas production mix that’s more than 59% of their total production.


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