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Are the Natural Gas Bulls Running for Cover?

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Aug. 18 2020, Updated 5:24 a.m. ET

Natural gas futures below the $3 mark

On June 14, 2017, natural gas (UNG) (BOIL) (GASL) (GASX) active futures settled at $2.93 per MMBtu (million British thermal units)—its lowest closing price since March 17, 2017. On June 13, 2017, natural gas active futures fell below the psychological level of $3, for the second time in this month.

Between June 7 and June 14, natural gas July futures fell 2.9%. During this period, US crude oil active futures tumbled 2.2%. Despite the fall in energy commodities, the Energy Select Sector SPDR ETF (XLE) rose 1.7% in the trailing week.

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Among the global equity indexes that have some weight in the energy sector, the CAC 40 Index (EWQ) was sensitive to a fall in energy commodities, falling 0.4% between June 7 and June 14. In the same week, the S&P 500 index (SPY), the S&P 400 Mid-Cap Index (IVOO), and the FTSE 100 Index (EWU) ignored the downturn in energy commodities and closed in the green.

Why is natural gas falling?

The two important factors that could be responsible for the natural gas fall are mild weather and the rise in rigs. The EIA’s (US Energy Information Administration) forecast suggests a mild summer in 2017. It could reduce natural gas consumption in electricity generation.

In 2017, natural gas consumption could fall by 1.7 Bcf (billion cubic feet) per day, mainly due to a subdued demand in power generation (based on EIA data).

In Part 2 of this series, we’ll discuss the impact of a rise in rigs on natural gas prices.

Natural gas July futures’ moving averages

On June 14, 2017, natural gas July futures settled 6.6% and 9.6% below its 20-day and 100-day moving averages. On the same day, its 50-day moving average was just 1.2% above its 200-day moving average.

Since May 26, 2017, the natural gas July futures 50-day moving average has been converging toward its 200-day moving average. If the 50-day moving average breaks below the 200-day moving average, it could be bearish for natural gas prices.

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