Last week, natural gas prices rose 1.4% and closed at $2.33 per MMBtu (million British thermal units). However, the oil rig count jumped by 18 to 685. This jump marked the highest weekly gain in US oil rigs since February 9, 2018. The number of oil rigs has been rising steadily since OPEC+ decided to implement an additional 0.5 MMbpd (million barrels per day) output cut until March 2020.
The rise in the oil rig count could increase natural gas supplies as it has in the past. The natural gas rig count was at 125, four fewer on a week-over-week basis. However, the rebound in the oil rig count could diminish the impact of the decline in the natural gas rig count on natural gas prices.
Today, Refinitiv’s weather forecast models suggest falls of 26 HDD (heating degree days) and 30.2 HDD from last week’s readings. The falls in the readings could be a bearish development for natural gas prices. On Friday, these weather models suggested changes of 9.8 HDD and -4.7 HDD from the previous day’s readings.
Inventory data and price forecast
In the week that ended on December 13, natural gas inventories were 0.3% below their five-year average. The term “inventories spread” denotes this difference. Reuters expects a draw of 164 Bcf on inventories for last week. The five-year average draw for the same week is 101 Bcf.
On Thursday, if the EIA (U.S. Energy Information Administration) reports a similar or higher draw than Reuters’s forecast, then the inventories spread will be -2.2%. Such a large expansion in the inventories spread into the negative territory could push natural gas prices up. Often in the past, the inventories spread and natural gas prices have diverged.
According to natural gas’s previous week’s implied volatility of 49.9%, natural gas prices are expected to close between $2.18 per MMBtu and $2.48 per MMBtu this week. A bullish inventory report could push prices near the $2.5 level until the end of 2019.
However, the EIA lowered the natural gas price outlook for 2020 because of rising production. The rise in the oil rig count could further increase natural gas production, as we discussed earlier. To learn more, read Where Natural Gas Prices Could Head after Inventory.
A golden cross for natural gas prices
Last week, active natural gas futures’ 50-day moving average moved above the 200-day moving average for the first time since February 22. Technically, this type of crossover is called a “golden cross.” Usually, it’s a bullish indicator for asset prices. The United States Natural Gas Fund LP (UNG) could rise, as it invests in natural gas futures.
This week, $2.36 could be a strong resistance level for natural gas active futures. Their 20-day and 100-day moving averages are $2.36 and $2.40, respectively.
For a technical analysis of Tesla’s latest, be sure to read Tesla Stock Rose 41%: Are Technical Indicators Bullish?