Cooler Weather Fuels Natural Gas Upbeat Moves

U.S. natural gas futures rose to the highest level since October 25 on the back of more “normal weather” forecasts which continue to raise expectations for increased demand.

Natural-gas futures for December delivery has soared to $3.190 a million British thermal units on the New York Mercantile Exchange, up nearly 4% compared to the last close at $3.069/mmBtu on Friday. The commodity has been on a rise since it rebounded from three-month low at $2.546/mmBtu logged on November 11. The rally has sent the price higher by more than 25%, recording the best two-week run since the end of 2015.

Weather forecasts on Friday broadly predicted some below-average temperatures settling in, though not temperatures as cold as previous forecasts. However, the longer-term trend has been a return toward normal as the historic warmth that started the autumn has seemingly come to an end.

About half of all U.S. households use gas for cooling and heating. Therefore, weather has been the most-common driver for demand and prices. The lower the temperature drops in the winter, the higher the demand for natural gas for heat. Autumn is usually the time when traders position themselves for the winter-heating season, and many investors have been betting that a decline in drilling activity and record gas consumption from power plants would scale back a glut that has plagued the market.

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Fig: Natural gas D1 technical chart

Natural gas is trading comfortably above the 23.6% Fibonacci retracement at 3.086. Before breaking above one of major Fib. handles, the price action had penetrated the long-term DMA50 from below, consolidating the uptrend. With RSI poiting upwards and a divergence between +DI and -DI lines, natural gas prices are expected to test the resistance at 3.280.

Trade suggestion

Buy Stop at 3.190, take profit at 3.280, stop loss at 3.100

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