Natural Gas: Is the Recovery Short-Lived?

Natural gas and energy stocks diverged

On June 25, natural gas August futures rose 0.1% and settled at $2.286 per million British thermal units. On the same day, Antero Resources (AR) and Cabot Oil & Gas (COG) returned 0.6% and -1.2%, respectively. The remaining natural gas–weighted stocks ended in the red. A fall of 0.1% in US crude oil prices might be behind the divergence. Antero Resources and Cabot Oil & Gas operate with a production mix of ~71% and 100% in natural gas.

Natural Gas: Is the Recovery Short-Lived?

Is the rise short-lived?

In the trailing week, natural gas active futures fell 1.1%. Since last week, natural gas prices have risen 5.4%. Demand outpacing supply this week might be behind the rise in natural gas prices. Higher LNG exports also supported natural gas’s rise. This summer, due to a possible rise in the oil rig count, we could see an increase in the natural gas supply. If OPEC decides to accelerate the production cut rate on July 1–2, the bearish sentiments might rise for natural gas prices. The EIA’s inventory data on June 26 would be crucial to sustain natural gas’s recovery.

Key technicals

On June 25, the natural gas active futures were 3.8%, 8.4%, 12.6%, and 24.9% below their 20-day, 50-day, 100-day, and 200-day moving averages, respectively. The 50-day moving average is 18% below the 200-day moving average. The difference has been diverging in the past few trading sessions. These technicals suggest weakness in natural gas prices.