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Natural Gas Prices Trade Close to Key Support Levels

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Trading channel 

NYMEX-traded natural gas futures contracts for December delivery were marching toward key support of $2.3 per MMBtu (British thermal units in millions) on November 17, 2015.

Prices have been oscillating within a narrow range of $2.2 per MMBtu and $2.4 per MMBtu for the last two weeks. Weather and inventory are swinging natural gas prices.

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Support and resistance 

The consensus of rising inventory and oversupply will drag natural gas prices lower. The nearest support level for natural gas prices is $2 per MMBtu. Prices hit this level in October 2015.

On the other hand, lower natural gas prices could boost consumption and benefit natural gas prices. The next resistance for gas prices is $3 per MMBtu. Prices tested this level in April 2015.

Capital Economics forecasts 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. The price chart suggests that gas prices could oscillate between $2 and $2.60 per MMBtu in the near term.

The EIA (U.S. Energy Information Administration) estimates that gas prices could average around $2.69 per MMBtu in 2015 and $3 per MMBtu in 2016. Bank of America Merrill Lynch (BAML) estimates that gas prices could average around $2.85 per MMBtu in 2015.

Effect on industry

The current bearish trend of natural gas prices may impact the profitability of gas producers such as ConocoPhillips (COP), Cimarex Energy (XEC), Newfield Exploration (NFX), Pioneer Natural Resources (PXD), and Comstock Resources (CRK). These companies’ natural gas production mixes are more than 49% of their total productions.

Uncertainty in the energy market impacts the performances of ETFs such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ) and the PowerShares DWA Energy Momentum ETF (PXI).

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