Cold Weather and PM Modi Spur Natural Gas Rally, But U.S. and Canada Fire Up Drilling Rigs

Natural gas futures turned higher on Monday after finishing lower last Friday. Following a correction as previous longs decided to book profits, the commodity prices, which is expected to be fueled by upcoming favorable weather, may extend their gains after a spectacular rally since November 9.

According to naturalgas.com, “a polar blast will invade the west-central U.S. the next few days with lows dropping into the single digits to teens, locally below zero. The eastern U.S. will warm early this week as weak high pressure builds in, although it will cool rapidly late in the week as polar arrives. A milder break will follow into the eastern U.S. next weekend into early the following week as cold reloads over the Northwest.” As temperatures continue to be cooler, natural gas demand may be increasing well above normal by mid-week and brings severe storage draws.

Meanwhile, also on the demand side, India was said to move forward a natural gas-based economy. Speaking in an energy conference on Monday, Indian Prime Minister Narendra Modi claimed that as natural gas is cheaper and less polluting fuel, his country will manage to raise local production of natural gas as well as create import infrastructure to meet the growing domestic demand.

On the supply side, the number of rigs targeting gas increased by one to 119 in the U.S. last week, said the Baker Hughes Industries last Friday. Meanwhile, the Canadian rig count also jumped last week with those drilling for gas adding by 20. Higher prices are encouraging more Canadian and American drillers get back to work, which causes a potential correction in the longer term despite bullish outlook in short-term.

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 Fig: Natural Gas D1 Technical Chart

Natural gas has been struggling around the highest level since October 18th at 3.544. The price is on the verge of breaking above the 0.0% Fibonacci level, which will also send the market into the overbought zone. As can be seen from the ADX chart, although  the ADX index is soaring, +DI line is pointing downward, suggesting cautious bulls.

Trade suggestion

Buy Stop at 3.520, Take profit at 3.720, Stop loss at 3.420

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