Climbing for a fifth consecutive trading session on Monday, natural gas futures could still have more room to move higher, according to technical analysts. However, they warned that the road to a sustained rally could be rocky.
The September New York Mercantile Exchange (Nymex) natural gas futures contract was 4.1 cents higher at around 1 p.m. ET Monday to $2.179/MMBtu. Modest weather support, higher LNG demand, and continued production curbs provided a fundamental backdrop for the gains.
“While still an oversupplied market, August supply/demand remains particularly tight,” EBW Analytics Group senior analyst Eli Rubin said.
Rubin also noted that Henry Hub spot prices had not risen above $2.00/MMBtu in two weeks. NGI’s Daily Historical data showed Henry Hub last traded at the psychologically important $2 level on July 24. The contract had traded as low as $1.800 on July 30. NGI’s MidDay Price Alert data showed the Henry Hub price back above the $2 mark, up 19.0 cents to average $2.145 at around 2:30 p.m. ET on Monday. The spot price gains provided an undercurrent of support for futures.
Meanwhile, technicals suggested the recent rally may be extended in the immediate term. “Technicals remain bullish and suggest upside could extend into the $2.30s,” Rubin said.
However, NGI’s Pat Rau, senior vice president of Research & Analysis, said extending the contract beyond $2.30 could be challenging.
“September has a bit of room to move higher before being considered overbought, and the contract can move up to $2.290 and still be within its moving 20-day Bollinger Band,” Rau said. The Bollinger Band is a technical tool analysts use to determine where prices are high and low relative to each other. It helps assess market volatility and identify potential entry and exit points.
The prompt month contract posted its recent reactionary high of $2.302 on July 22, and reaching that area would likely push September into the overbought zone, Rau said. “Near-term fundamentals are improving, but any sustained rally would have to take out what is looking like tricky technical resistance at $2.30.”
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The Relative Strength Index (RSI), a tool that measures the speed and magnitude of an asset’s recent price changes, helping traders identify overvalued or undervalued conditions, was at 52.27, Mizuho Securities USA LLC’s Robert Yawger, executive director of Energy Futures, said Monday. That indicates the contract has room to go before it is oversold or undervalued and due for bounce.
Yawger said the market is looking at support versus the continuation pattern three-month low of $1.856 posted on July 29 and the four-year low of $1.481 on March 26.
Rau pointed to support for September at the psychological $2 mark, followed by more traditional technical support in the $1.88-1.92 range as determined by the bottom of the current Bollinger Band and the previous $1.882 reactionary price low last reached on August 5.
With technicals suggesting more downside likely before a more sustained rally, Rubin said the recent gains were likely the result of speculator short-covering, which was “already a source of bullish pressure across the Nymex curve as shorts buy natural gas to close out leveraged short positions.”
Friday’s Commodity Futures Trading Commission Commitments of Traders data suggested little net change in natural gas speculator positioning for the week ending Tuesday (Aug. 6), with shorts gaining 1,000 positions and longs shedding 2,000 positions, Rubin said.
