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What Could Hinder Natural Gas’s Recovery?

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Natural gas futures

On December 19, 2017, natural gas (UNG) (FCG) January 2018 futures fell 1.9%. On the same day, natural gas futures closed at $2.69 per MMBtu (million British thermal units)—just ~5.1% above their lowest closing price of 2017.

Oversupply concerns have dominated natural gas prices in the last few trading sessions. According to the EIA’s DPR (Drilling Productivity Report) released on December 18, natural gas production from the seven shale regions could rise to ~63.0 Bcf (billion cubic feet) per day in January 2018. 

This production level is ~15.5 Bcf per day more than in January 2017—a 32.6% rise in the span of just one year. This could be a hindrance to any recovery in natural gas prices. We will discuss the natural gas supply situation in the next part of this series.

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Between December 12 and December 19, 2017, the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) might have overlooked the small recovery in natural gas prices with a 0.7% and 1.0% rise, respectively, close to record levels. Over the same period, US crude oil (USO) February futures rose 0.7%.

Moving averages

On December 19, natural gas active futures were 6.7%, 8.7%, 8.6%, and 10.7% below their 20-day, 50-day, 100-day, and 200-day moving averages, respectively. Moreover, the 50-day moving average was 2.2% below the 200-day moving average. These are all bearish signals for natural gas prices.

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