Despite significant selling pressure due to the absence of weather-induced demand, natural gas futures have managed to consistently stay above last week’s high all week. The bullish EIA report on Thursday did not indicate any implied production issues.
The current week will be closely monitored to determine if the pipeline flow data reflects a decline in production. While production appears to be lower than anticipated, exports remain soft at only 12.5 bcf/day, and weather patterns continue to be bearish, as the heat is not widespread enough to generate significant cooling demand in the United States until the first week of June.
On Friday, natural gas futures are expected to experience a sharp reversal after testing the day’s low of $2.422. If prices hold above $2.676 before the weekly closing, a reversal could be imminent. The price trend since May 5, when natural gas tested a low at $2.032, suggests that a breakout is likely to occur soon, pushing prices above 2.777 again.
The closing level of this week and the opening level of the following week will provide traders with some solid cues about the next week’s directional movements when the influence of the first week of June, which historically repeats itself during the onset of summer demand, is experienced.
It is concluded that a drop in natural gas futures up to $2.323 provides an excellent opportunity to go long in the current session, and that readers should take a trading position at their own risk because natural gas is one of the most liquid commodities globally.
Disclaimer: The author of this analysis does not have any position in natural gas futures.