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Will Natural Gas Prices Test October’s Lows?

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Nov. 23 2015, Updated 1:11 p.m. ET

Falling price channel 

December natural gas futures contracts fell for the fourth consecutive day. Prices could test the next support of $2 per MMBtu (British thermal units in millions) as it appears that natural gas prices are trading within a downward trending channel. Record inventories and weather estimates have been influencing natural gas prices.

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Key pivots 

A cold winter could push natural gas prices higher. The next resistance for natural gas prices is seen at $3 per MMBtu. Prices hit this level back in April 2015. On the other hand, the current bearish momentum, added to record production and mild weather, could drag natural gas prices lower. Natural gas prices could see support at $2 per MMBtu. As a matter of fact, prices tested this mark in October 2015.

The EIA[1. U.S. Energy Information Administration] forecasts that natural gas prices could average around $2.69 per MMBtu in 2015 and $3 per MMBtu in 2016. Citigroup forecasts that US natural gas prices could average around $2.7 per MMBtu in 2015 and $3 per MMBtu in 2016. The natural gas chart suggests that prices could oscillate between $2 per MMBtu and $2.4 per MMBtu in the near term.

Impact 

The roller coaster ride of natural gas prices impacts the margins of oil and gas producers like Southwestern Energy (SWN), ConocoPhillips (COP), Cimarex Energy (XEC), and Comstock Resources (CRK). These companies’ natural gas production mixes are more than 49% of their productions portfolio. The prices also affect funds such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ) and the PowerShares DB Energy ETF (DBE).

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