Will Clinton Victory Ignite A Multi Year Bull Run In Natural Gas?

Natural gas rose for the first time in the last four trading sessions, on Monday. After drifting lower in the second half of last week due to both fundamental and technical pressure, natural gas bounced back today as hedge funds increased bullish wagers on the commodity.

Natural Gas Demand-Supply Outlook

Natural gas pulled back from 16-month highs at $3.097 on Wednesday, and was driven lower on Thursday after the U.S. EIA reported larger-than-expected stocks for the week ended Sept. 16. Data showed that supplies rose 52 bcf in the reported week, topping the average rise of 51 bcf expected by analysts. Total stocks surged to 3.551 trillion cubic feet, up 140 bcf from a year ago and 268 bcf above the five-year average.

U.S. Commodity Futures Trading Commission data released on Friday indicated money managers increased their net-long positions in natural gas futures and options for a second week to the highest level since 2014. NG futures have staged a dramatic recovery after a warmer than usual winter led to low consumption and left behind record inventories earlier this year, sending prices to multi-decade lows in March. Scorching summer and unusually warm weather for this time of year has boosted air-conditioner use this year.

As a result, gas demand from electricity generators has been pushed to a record, helping erode an inventory surplus that was weighing on prices. Drillers cut costs and capped production from shale due to low oil prices. Thus, stockpiles may fall below normal levels before the winter. In the event of a cold winter, the NG market may be left with a deficit and could be vulnerable to price spikes.

Gas used by power plants has risen 55% since 2006 not just due to a boom in production from U.S. shale fields that increased supply and drove down prices. Furthermore, governments are gradually replacing coal with gas as it produces less carbon dioxide than coal when burned.

Japan’s demand for liquefied natural gas (LNG) is expected to increase regardless of the nuclear re-start program. Japan is the world’s largest LNG importer at about 35% of global demand. Nonetheless, this country is still overly reliant on oil and coal when it comes to energy use. Japan is being criticized for using a significantly higher ratio of oil and coal in generating power than other developed countries. As a result, Japanese government to encourage natural gas consumption instead of oil and coal to reduce CO2 emissions.

U.S. Presidential Debate

Natural gas investors are waiting for the debate between U.S. presidential candidates that is scheduled for later today. Given different economic policies of the two candidates, U.S gas demand will be influenced. According to Bloomberg Intelligence estimates, gas use for power generation in 2030 will fall by 11% compared to the level of 2015, if Republican Donald Trump is elected.

Trump is among those supporting to eliminate clean air rules proposed by President Barack Obama. Obama’s Clean Power Plan targets to wean the U.S. off coal used by power plants to reduce emissions by 32 percent by 2030.

On the contrary, the volume of natural gas burned by America’s power plants may rise by 5.8 percent should Democrat Hillary Clinton, who has pledged to enforce the Obama plan, becomes the first female president of the U.S.

Technical Analysis

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Fig: Natural Gas D1 Technical Chart

Natural gas has witnessed a strong rise since March 2016 which has doubled and pushed the commodity price above 3.000 for the first time since May 2015. The price retreated after the market hit the overbought threshold but is expected to extend the advance as both the short-term DMA20 and the long-term DMA50 are moving below the price action, fueling bullish momentum in the market.

Trade suggestion

Buy Stop at 2.985, Take profit at 3.020, Stop loss at 2.930

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