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Natural Gas Could Have Limited Upside in 2017

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Natural gas prices

In the past five trading sessions, natural gas (UNG) (BOIL)(FCG) April futures rose 2.8%. They closed at ~$2.98 per MMBtu (million British thermal units) on March 15, 2017—about 1.5% higher than the previous session. Natural gas has traded between $2.83 and $3.1 per MMBtu in the past five trading sessions. In the trailing week, the Energy Select Sector SPDR ETF (XLE) rose 1.6% and the S&P 500 Index (SPY) (QQQ) (SPX-INDEX) rose 1%. The Dow Jones Industrial Average (DIA) (DJIA-INDEX) rose 0.5% during this period.

Last week, a cooler weather forecast caused the upside in natural gas prices. Weather is an important driver for natural gas prices. Apart from the weather, rising oil rigs could be a concern for natural gas prices. We’ll discuss how oil rigs impact natural gas production in Part 2 of this series.

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Key moving averages

On March 15, 2017, natural gas futures were trading ~5.2% below their 100-day moving average, but 4% above their 20-day moving average. On March 9, 2017, natural gas futures moved above their 20-day moving average. While the break above the 20-day moving average is a short-term bullish signal, prices below the 100-day moving average indicate an upside resistance for natural gas prices.

Notably, natural gas price sentiment impacts ETFs like the ProShares Ultra Oil & Gas (DIG), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), the iShares US Energy (IYE), and the Fidelity MSCI Energy ETF (FENY).

Series focus

In this series, we’ll analyze how fundamental drivers like the rig count, natural gas inventories, and the US dollar impact natural gas prices. We’ll also discuss what the natural gas futures forward curve might be indicating.

Next, we’ll see how the oil rig count impacts natural gas prices.

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