Natural Gas Prices Holding Strong
Bearish Catalyst Could Weigh on Natural Gas Market
Price trend
January natural gas futures contracts held above $2.2 MMBtu (British thermal units in millions) for the third day in a row. Natural gas prices have been trending down for more than three months. Weather and inventory estimates have been driving natural gas prices.
Support and resistance
Bearish traders could see support at $2 per MMBtu, which was reached in October 2015. Long-term oversupply concerns and record inventory could drag natural gas prices lower. Bullish traders see resistance at $3 per MMBtu, which was reached in April 2015. Cold winter could benefit natural gas prices.
Natural gas prices are trading below their key moving averages, which suggests prices could trade lower. However, the relative strength index suggests that they are oversold, so they could trade higher. The EIA (U.S. Energy Information Administration) estimates that US natural gas prices could average around $2.69 per MMBtu in 2015 and $3 per MMBtu in 2016.
Impact
Natural gas producers such as ConocoPhillips (COP), Rice Energy (RICE), Cimarex Energy (XEC), and Comstock Resources (CRK) are strongly affected by falling natural gas prices. Combined, these companies’ natural gas production mixes are greater than 49% of their total production. The roller coaster ride of natural gas prices also impacts ETFs such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ) and the PowerShares DB Energy ETF (DBE).
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