Long-term downward trend
November natural gas futures contracts are following their long-term downward trend. Prices were trading close to the key support of $2 per MMBtu (British thermal units in millions) on October 28, 2015. Weather, inventory, and production are the negative catalysts for the natural gas market.
Natural gas futures are trading below their 20-day, 50-day, and 100-day moving averages. Weak demand, mild winter, and rising production could drag natural gas prices lower. The critical support for natural gas prices is at $2 per MMBtu. Prices hit this mark in October 2015. On the other hand, bottom-fishing and short-covering could push natural gas prices higher. The next resistance level for natural gas prices could be $3 per MMBtu. Prices hit this mark in April 2015.
The relative strength index (RSI) for November natural gas futures contracts is in oversold territory for the fourth day in a row. It suggests prices could recover over the short term. Citigroup forecasts that natural gas prices could average around $2.70 per MMBtu in 2015 and $3 per MMBtu in 2016. The EIA (U.S. Energy Information Administration) estimates that US natural gas prices could average around $2.8 per MMBtu in 2015 and $3.1 per MMBtu in 2016.
Long-term lower natural gas prices affect the margins of natural gas producers like Exco Energy (XCO), Ultra Petroleum (UPL), Gulfport Energy (GPOR), and Comstock Resources (CRK). These companies’ natural gas output mix is more than 49% of their total production. These companies account for 5.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).