In the week ended November 1, natural gas prices surged 18%. This was the largest weekly gain for natural gas active futures since the week ended January 24, 2014. Last week, the United States Natural Gas Fund LP (UNG) rose 9.6%. UNG invests in natural gas futures. However, its underperformance could be due to fund expenses.
Natural gas–weighted stock Chesapeake Energy (CHK) declined more than 7% between October 25 and November 1. The underlying investor nervousness could be due to CHK’s earnings, which it plans to release this week. To learn more about CHK’s earnings, please read Chesapeake: Hedge Fund at Risk If Earnings Fall.
The natural gas rise continues
Today at 11:01 AM EST, natural gas active futures were up nearly 3.6%. On November 4, Reuters’ weather forecast model suggests a rise of 4.2–30.8 HDD (heating degree days) from the earlier forecast in the Lower 48 states. This forecast is for the next two weeks. With such a bullish weather forecast, we might see further upside in natural gas prices.
In the week ended November 1, the natural gas rig count fell by three to 130. This is the lowest level for the natural gas rig count since the week ended December 23, 2016.
The oil rig count is also in a similar downtrend. Last week, the oil rig count fell by five to 691, the lowest level since the week ended April 21, 2017. Please read Natural Gas Rig Count Might Impact Natural Gas Prices to learn more about the impact of the oil rig count on natural gas production.
The fall in the natural gas and oil rig counts is a positive development for gas prices. This trend might support Henry Hub gas prices this week. Higher natural gas supplies are the main reason behind the plummeting gas prices in the last decade. Natural gas active futures have declined 46.2% between October 30, 2009, and November 1, 2019.
Natural gas prices’ moving averages
On November 1, natural gas active futures were 15.6%, 13.3%, 16.6%, and 8.2%, respectively, above their 20-, 50-, 100-, and 200-DMAs (day moving averages). Prices above these key moving averages suggest bullishness for natural gas.
The difference between its 50- and 200-DMA has narrowed to 4.5%. With today’s gains, these moving averages’ difference is now 3.9%. If the 50-DMA moves above the 200-DMA, we might see further upside in natural gas prices.
This week, Henry Hub gas prices are expected to settle at $2.53–$2.90 per MMBtu (million British thermal units). With renewed bullish sentiment, we might see natural gas reach the $3 level by the end of this week. This price range depends on natural gas’s implied volatility of 59.1%. The confidence level is set to 68%, while prices should be normally distributed.