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Natural Gas Trades above Key Support Level

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Jan. 9 2016, Updated 9:04 p.m. ET

Natural gas price channel

The US natural gas futures contracts for January delivery broke above the psychological level of $2 per MMBtu (million British thermal units) on Thursday, December 24, 2015. Prices are above the key support level of $2 per MMBtu. The greater-than-expected fall in natural gas inventory is driving natural gas prices, despite the overall long-term falling trend.

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Key support and resistance

The long-term pessimism stemming from oversupply and a mild winter could drag natural gas prices lower. The next support level for gas prices is $1.60 per MMBtu. Prices tested this mark in 1995. On the other hand, short covering and bargain buying could boost natural gas prices. The next resistance level is $3 per MMBtu. Prices tested this mark in April 2015.

Natural gas prices are marginally above their 20-day moving average but below their 50- and 100-day moving averages. The overall trend is still bearish. The EIA’s latest estimates suggest gas prices could average $2.67 per MMBtu in 2015 and $2.88 per MMBtu in 2016. Goldman Sachs suggests that natural gas could trade around $2.85 in 2016. Natural gas prices were the top performers across the commodities last week.

Higher natural gas prices benefit US gas producers such as Southwestern Energy Company (SWN), Cimarex Energy (XEC), Cabot Oil & Gas (COG), Rex Energy Corporation (REXX), and Gulfport Energy Corporation (GPOR). ETFs such as the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) and the PowerShares DWA Energy Momentum Portfolio (PXI) are also affected by natural gas price movement.

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