Will Natural Gas Prices Test New Lows?



Downward trending channel 

October natural gas futures contracts resumed the downward trend after rising on September 22, 2015. Prices fell for the sixth time in the last seven days. Natural gas prices tested the five-month low of 2.55 per MMBtu (British thermal units in millions) on September 21, 2015. The estimates of record weekly natural gas inventory gains are putting downward pressure on natural gas prices.

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Key pivots 

The long-term lower natural gas prices and demand from power plants could support natural gas prices. Natural gas prices could see resistance at $3 per MMBtu. Prices hit this level in April 2015. In contrast, the rising natural gas stockpile could drag natural gas prices lower. The nearest support for natural gas prices could be seen at $2.50 per MMBtu. Prices hit this level on April 2015.

Natural gas prices could hit $3.50 per MMBtu by the end of 2015 and $4 per MMBtu by the end of 2016, according to Capital Economics’ forecast. Citigroup forecast that US natural gas prices could average around $2.70 per MMBtu in 2015 and $3 per MMBtu in 2016. The downward trending channel suggests that prices could fluctuate between $2.50 and $3 per MMBtu in the near term.

The volatility in natural gas prices impacts oil and gas producers like Rice Energy (RICE), Chesapeake Energy (CHK), and Range Resources (RRC). They account for 2.77% of the SPDR Oil and Gas ETF (XOP). These companies’ natural gas production mix is more than 49% of their production portfolio.

Energy ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG) are also impacted by the roller coaster ride of natural gas prices.


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