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Natural Gas Prices Are Following the Price Channel

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Dec. 4 2020, Updated 10:53 a.m. ET

Trading range

Natural gas futures contracts for September delivery have been showing the emergence of a trading channel for almost two months. Prices were trading near the resistance of $2.80 per MMBtu (British thermal units in millions) on August 7, 2015. Weather and inventory estimates could play a vital role in driving natural gas prices this week.

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Key pivots

The mild weather forecast and rising inventory estimates could drag natural gas prices lower. The key support for natural gas prices is seen at $2.60 per MMBtu. Prices hit this mark in June 2015. In contrast, the resistance for natural gas prices is seen at $3 per MMBtu. Prices hit this level in April 2015. The demand from power plants and warm weather could benefit natural gas prices.

The trading range suggests that natural gas prices could fluctuate between $2.60 and $3 per MMBtu in the near term. The estimates from Citigroup project that natural gas prices could average around $2.70 per MMBtu in 2015 and $3 per MMBtu in 2016.

The uncertainty in natural gas prices affects the performance of ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG). They also impact natural gas producers like Chesapeake Energy (CHK), Energen (EGN), and Cimarex (XEC). They account for 3.49% of the SPDR Oil and Gas ETF (XOP). These stocks’ natural gas production mix is greater than 59% of their production portfolio.

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