The natural gas markets have been very noisy over the last couple of months, and a lot of my emails from readers have been asking me when it is time to start shorting natural gas, because it has gotten “way too expensive.” The reality is that most traders do not even know the market that they are trading, as the Henry Hub Natural Gas contract is in the United States, not other parts of the world. For example, in Europe, it is roughly 5 times more expensive than it is in the United States. The fundamentals and the dynamics are completely different.
That being said, there has been a lot of demand placed upon the market all of a sudden, especially as earlier this year a lot of the southeastern refinery and production had been taken out, due to the fact that there was a flood and then a hurricane. With that alone, there was a major issue, but the fact that suddenly everybody started to move around again after the lockdowns means that natural gas demand has shot through the roof. This is a structural problem, but not necessarily a permanent one. Capital expenditure in the natural gas market has been rather slim, due to the fact that the latest administration in the United States seems to be focused more on green energy, something that a lot of people are concerned about now.
That being said, you do not simply “flip the switch” and start producing twice as much natural gas. Nonetheless, you will not see the astronomical prices that you see in the European Union right now. As you can see, the symmetrical triangle that I have drawn on the chart is probably something worth paying attention to, but it is also worth noting that the candlestick on Wednesday closed at the very top of the range. The 50-day EMA underneath has offered significant support near the $5.20 level, which was all kicked off by the inverted hammer on Monday. Whether or not we can break above the $6.27 level is the next question, because if we can, it is likely that natural gas would take off rather drastically. At this point, we are still trading the December contract, meaning that demand is still being priced into this chart.