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US Natural Gas Prices Could Fall Due to Profit-Booking

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Jan. 28 2016, Updated 10:23 a.m. ET

Natural gas price trend 

US natural gas prices rose for the fifth consecutive trading session yesterday. They have risen by 4% this week. However, the relief rally is still overshadowed by the long-term falling trend. Natural gas is trading close to the key resistance level of $2.20 per MMBtu (British thermal units in millions). The consensus of falling natural gas inventories could boost natural gas prices.

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Support and resistance levels

Long-term oversupply concerns, profit-booking, record inventory, and mild weather could drag natural gas prices lower. Natural gas prices could see a support level at $1.60 per MMBtu. Prices hit this mark in 1995. On the other hand, the cold winter weather forecast could support natural gas prices. The next resistance level for natural gas prices is $3 per MMBtu. Prices tested this mark in April 2015.

Natural gas prices are trading below their 20-, 50-, and 100-day moving averages. The price trend and the chart above suggest natural gas could trade between $2.10 per MMBtu and $2.30 per MMBtu in the short term. The EIA (U.S. Energy Information Administration) forecast that US natural gas prices could average around $2.65 per MMBtu and $3.22 per MMBtu in 2016 and 2017, respectively. Fitch Ratings estimates that natural gas prices could average around $2.50 per MMBtu in 2016.

The recent spike in natural gas prices benefits upstream players like Hess (HES), ConocoPhillips (COP), Cabot Oil & Gas (COG), Rice Energy (RICE), Southwestern Energy (SWN), and QEP Resources (QEP). The ups and downs in the oil and gas market affect ETFs like the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the Fidelity MSCI Energy Index ETF (FENY), and the VelocityShares 3X Long Natural Gas ETN (UGAZ).

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