The pummeling continued in natural gas futures, with technicals suggesting additional losses amid a dearth of fodder to nourish the bulls. However, after controlling the market for six weeks, bears could be losing steam, opening the door for the bulls to run.
The September New York Mercantile Exchange (Nymex) contract settled Friday (Aug. 2) at $1.967/MMBtu, drifting less than a penny lower day/day. The prompt-month contract extended losses on Monday. The contract was off 5.7 cents at $1.910 at 10:50 a.m. ET.
“Natural gas is down 4.07% versus $1.887 and traded to a September contract low of $1.882,” Mizuho Securities USA LLC’s Robert Yawger, executive director of Energy Futures, said Monday. The low compared with the three-month continuation low of $1.856 on July 29 and the four-year low of $1.481 on March 26, Yawger said.
“Nearby September natural gas futures have kept the downside open with a new low today but are showing some loss of downward momentum that suggests the downtrend of the past six weeks may be nearing exhaustion,” Evans on Energy analyst Tim Evans told NGI.
Evans highlighted the potential for a trend reversal, pointing to the relative strength index (RSI) — a technical indicator that measures the speed and magnitude of recent price changes to evaluate overvalued or undervalued conditions. The RSI showed a possible bullish divergence. “Overall, this suggests the remaining downside risk may be limited, and we could be setting up for an intermediate-term upward correction.”
Evans said one potential objective is a 50% retracement of the six-week decline in September futures, which would target $2.545.
Yawger agreed that the RSI suggested a potential upturn. The RSI was 35.44, Yawger said. Traditionally, an RSI reading of 70 or above indicates an overbought situation, while a reading of 30 or below indicates an oversold condition. The current reading suggests that futures may be primed for a trend reversal, potentially indicating a shift in market sentiment.
According to DeCarley Trading analyst Carley Garner, a reversal could come relatively soon. Garner told NGI that technical charts are unchanged, and commodity markets are “being held hostage by stock market volatility.”
In the bigger picture, “I still expect natural gas to find a low sooner rather than later,” Garner said, noting that a close above $2.00 in the coming days would confirm a trend change.
Meanwhile, NGI’s Daily Spot Price data showed Henry Hub at $1.890/MMBtu, down 6.0 cents on Friday, heading into what was expected to be a sweltering weekend. While much of the country saw similar prices, California proved to be an exception amid scorching heat. PG&E Citygate averaged $3.395, while the SoCal Citygate averaged $2.770.
EBW Analytics Group senior analyst Eli Rubin said that ahead of an uptick, more downside is likely. “Weather-related natural gas demand may slide 3.4 Bcf/d over the next five days as the heat wave crests and retreats.” That could potentially reduce the demand for natural gas and put downside pressure on natural gas futures.
“The long-term technical trends also point to more losses,” Rubin said. “Natural gas prices could fall into the low-to-mid $1.80s.”
Rubin noted Friday’s Commodity Futures Trading Commission Commitments of Traders data showed a 7,000-contract increase in natural gas speculator short positions for the week ended Tuesday (July 30). However, an 11,000-position build in long-term contracts overshadowed gains.
Speculator short positions have spiked by 120,000 contracts in the past six weeks and could be a “potential source of a short-covering event,” Rubin said. “Short-covering appears most likely to follow a bullish catalyst, however, in a currently barren near-term landscape for bulls,” he said.
