- Natural gas markets experienced a minor setback during Tuesday's trading session, with a slight decline of just over 2% overnight, only to turn back around and start rallying again.
- This recent struggle can be attributed to seasonal effects, particularly the decrease in demand for natural gas as we approach the summer season.
- The primary driver of natural gas demand during this period is heating in the northern hemisphere, which significantly diminishes as temperatures rise. Consequently, it should come as no surprise that the market has been exhibiting a sideways movement, alternating between gains and losses.
An important resistance level to monitor is the 50-Day Exponential Moving Average, located above the current market price. If the market begins to approach this indicator and shows signs of exhaustion, it may present a compelling selling opportunity. Looking ahead, it is likely that the natural gas market will oscillate between the $2.00 support level and the $3.00 resistance level until the end of summer. This range, often referred to as the "summer range," is a common occurrence in the natural gas market.
It is worth noting that occasional heat waves in the northern hemisphere can temporarily drive-up natural gas prices during summer, and this will happen eventually. However, such instances are more likely to serve as opportunities to sell rather than indications of a sustained upward trend. The true movement in the market is expected to occur later in the summer when European countries will need to replenish their natural gas storage in preparation for another winter without Russian gas. This factor is likely to contribute to increased prices in natural gas as we approach the end of summer. It would not be surprising to witness a surge toward the $4.00 level during that period.
The Market is Facing Challenges
Furthermore, it is important to recognize that the $2.00 level serves as a robust support zone, extending down to the $1.80 level. This suggests that it is prudent to fade rallies, meaning taking advantage of price increases as selling opportunities. This approach aligns with the expectation that the demand for natural gas will continue to be affected by both seasonal effects and a decline in industrial demand, stemming from a potentially slowing economy.
At the end of the day, the natural gas market has encountered challenges recently due to seasonal effects and a decline in demand. While the market is likely to exhibit volatile behavior throughout the summer, it is anticipated that prices will eventually rise as European countries replenish their natural gas storage. Traders should remain cautious and consider fading rallies, keeping an eye on the $2.00 support level. As the summer progresses, the natural gas market may experience an upward trajectory, potentially propelling prices toward the $4.00 level.
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