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Will Lower Natural Gas Prices Push Prices Higher?

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Downtrend channel

November natural gas futures contracts are showing the emergence of a downward price channel. Prices rose from the key support level. They’re trading within 2.50 and 2.80 per MMBtu (British thermal units in millions) levels. The cold weather estimates are driving natural gas prices.

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Support and resistance

The cold weather forecast and long-term lower natural gas prices could boost natural gas consumption. As a result, prices could increase. The nearest resistance for natural gas prices could be seen at $3 per MMBtu. Prices tested this mark in April 2015. In contrast, rising production could put pressure on natural gas prices. The next support for natural gas prices is seen at $2.50 per MMBtu. Prices tested this level in April 2015.

Capital Economics estimates that US natural gas prices could hit $3.50 per MMBtu by the end of 2015 and $4 per MMBtu by the end of 2016. Natural gas prices could average around $2.70 per MMBtu in 2015 and $3 per MMBtu in 2016, according to Citigroup’s forecast. Likewise, the EIA (U.S. Energy Information Administration) projected that US natural gas prices could average around $2.84 per MMBtu in 2015 and $3.11 per MMBtu in 2016.

The roller coaster ride of natural gas prices affects upstream producers like Chesapeake Energy (CHK), Rice Energy (RICE), and Range Resources (RRC). Combined, they account for 2.77% of the SPDR Oil and Gas ETF (XOP). These stocks’ natural gas production mix is more than 49% of their production portfolio.

Oil and gas ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG) are also impacted by natural gas prices’ volatility.

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