Falling U.S. Stockpiles Magnifies Cooler Weather Effects on Natural Gas

U.S. natural gas continued to edge higher on Thursday, bolstered by new federal data that showed the additional amount of gas in storage fell last week amidst cooler forecasts which helped raise expectations for demand.

Natural-gas futures for January delivery jumped more than 3.5% to $3.501 a million British thermal units on the New York Mercantile Exchange. Natural gas has been on a rise, rallying around 25% in the last two weeks, approaching the 10-month highs at $3.544/mmBtu logged on October 18th.

The U.S. Energy Information Administration on Thursday reported that natural gas stockpiles dropped by 50 billion cubic feet last week. The draw sent total natural-gas stocks now stand at .995 trillion cubic feet, 0.6% above levels from last year and 6.25% above the five year average.

Meanwhile, latest forecasts show below-average temperatures spreading across most of the country starting next week. Lower temperatures will increase natural gas demand for heating, helping to dispel fears that a glut of supply will continue to weigh on prices.

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Fig: Natural Gas D1 Technical Chart

Natural gas is heading for the 0.0% Fibonacci level after rebounding from the 50.0% retracement. Although the ADX index is soaring with a wide gap between the +DI and -DI lines, RSI has neared the overbought zone. Given the strong resistance at 0.0% level, that handle can be the near-term target.

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Buy Stop at 3.500, Take profit at 3.540, Stop loss at 3.480

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