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Bottom Fishing Could Lead to a Natural Gas Price Rally

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Natural gas price trends 

US natural gas prices are trading close to 16-year lows. Prices fell for the third consecutive day, and they’re following the long-term bearish trend. Prices are trading below the psychologically key level of $2 per MMBtu (million British thermal units). The US inventory report is driving natural gas prices.

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Support and resistance 

Long-term oversupply concerns and mild winter weather could drag down natural gas prices. The next support level for natural gas prices is $1.60 per MMBtu. Prices tested this level in 1995. In contrast, short covering and bottom fishing could push natural gas prices higher. The next resistance for natural gas prices is $3 per MMBtu. Prices hit this level in April 2015.

Natural gas price forecast 

Natural gas prices are trading below their key moving averages. This trend suggests prices could trend lower. Quantum Gas & Power Services estimates that US natural gas prices could fall below $2 per MMBtu in February 2016. They might even fall below $1.50 if the weather stays milder than normal this winter. Raymond James—a financial services firm—estimate that US gas prices could average around $2 per MMBtu in 2016. The EIA (U.S. Energy Information Administration) forecasts that gas prices could average around $2.71 per MMBtu and $3.32 per MMBtu in 2016 and 2017, respectively.

The ups and down in gas prices impact oil and gas producers such as Cabot Oil & Gas (COG), Rice Energy (RICE), Exco Resources (XCO), EQT (EQT), EOG Resources (EOG), Southwestern Energy (SWN), and QEP Resources (QEP). They also affect ETFs and ETNs such as the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the Direxion Daily Energy Bull 3x (ERX), the Fidelity MSCI Energy ETF (FENY), and the VelocityShares 3X Long Natural Gas ETN (UGAZ).

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