gas burners

Natural Gas Prices Rise After Shorts Cut Bets

By:Thomas Westwater

Prices breakout over the 100-day moving average

  • Natural gas futures (/NGV3) climbed to start the week.
  • Supply disruptions out of Australia underpins volatility.
  • Technical picture improving but rangebound trading remains.

Natural gas prices (/NGV3) are trading higher in afternoon Wall Street trading, rising 2.5% or $0.06 per million British thermal units (mmbtu), as longs reenter the trade following a wave of selling late last week. It’s likely that broader strength in oil markets is aiding /NG’s climb. Despite today’s move, the commodity is down over 2% from the start of the month.

The U.S. benchmark hasn’t exceeded $3 mmbtu since early this year when prices fell from loftier levels traded at last winter. While there has been a good amount of volatility in recent months, prices have kept under that mark, except for a brief period in August that was quickly sold off.

Natural gas volatility subject to foreign flows, weather trends

While the U.S. is entering its heating demand season, when stockpiles are typically drawn down amid increased energy demand, the next month offers a transitory period when demand can ease. This can sometimes lead to lower volatility, assuming the U.S. sees seasonal weather.

In fact, we are seeing some repositioning among speculators when looking at the Commitments of Traders (COT) report from the CFTC. Data released on Friday for the week ending Sept. 12 showed short contracts fell by 10,057, while long contracts fell by 3,822, a net change of 5,620. This isn’t a monumental shift, but we should expect to see shorts adding back over the coming weeks as winter approaches.

cot ng

One source of volatility is coming from Australia. Workers at two Chevron (CVX) plants in Western Australia are currently striking. Up until recently, only a limited strike was occurring, but the industrial action is expected to increase, which may impact outflows from Australia that have been unimpacted up to this point.

If so, that could inject a new round of volatility into the U.S. pricing as Europe and Asia would face increased competition over the same liquid natural gas (LNG) cargo. Another issue came out of an LNG facility in Texas. The facility, owned and operated by Freeport, saw a large drop in feed gas deliveries for the week ending September 11, according to a report by S&P Global. That problem was reportedly fixed last week, which may explain some of the late-week weakness.

The week ahead will unveil U.S. inventory figures, which may influence price action. Traders will also continue to closely watch Australia for further news of industrial actions from Chevron workers.

Natural gas technical outlook

Currently, prices are climbing above the 100-day simple moving average. A daily close above the SMA could introduce some bullish confidence. Meanwhile, the moving average convergence/divergence (MACD) made a bullish cross and is heading for its center line, indicating the start of a potential uptrend.

ng tech chart

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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