Natural gas price analysis: Corrective pullback or trend reversal?

Natural gas price has eased from the multi-year high hit late last week. However, it is still on an uptrend as LNG exports and the weather forecast fuel a bullish demand outlook. 

Natural gas futures for December delivery are trading slightly lower than the 3-year high hit in the previous week. Notably, that’s the highest level since December 2022 when the Russia-Ukraine war fueled supply concerns.

At the same time, Henry Hub spot prices had recorded their fourth consecutive week of gains; reaching an 8-month high. This benchmark continues to trade above the crucial support zone of $4.00 per MMBtu despite the pullback. At the time of writing, it was trading at $4.43.

Is the natural gas price pullback corrective?

Natural gas price has rallied by close to 70% YoY with the winter weather already gripping some parts of the US. More precisely, the country’s eastern region has been experiencing an extreme cold spell, with temperature levels surpassing previous records. 

However, most areas are still warmer-than-normal; a trend expected to continue till early December. Indeed, this is one of the factors that have contributed to the recorded pullback.

Besides, the winter season is commencing with ample stocks. According to data from the EIA, the amount of gas in storage is 4% higher than the average for this time of year. However, the robust US LNG exports to Europe, coupled with the year’s winter season, will offer steady support to natural gas prices. For instance, Ukraine has entered into an agreement to import US LNG enough for the entire winter season via Greece. This is as European countries strive to lower their dependence on Russian gas.

With the solid fundamentals, the bulls remain in control despite the recorded pullback. On the one hand, the mild weather has lowered heating demand in the near term. However, it has also provided an opportunity for the buyers to position themselves ahead of the supply risk linked to the Northern Hemisphere’s winter season.  

Natural gas price technical analysis

Henry Hub natural gas price edged lower on Monday, with the bulls striving to defend the support level at $4.40 per MMBtu. On Friday, it had momentarily dropped below that zone before ending the week near the 8-month high hit in the previous session. 

Over the past two weeks, it has rallied by close to 15%; holding steady above the crucial support level of $4.00. Before 30th October, that had been an evasive zone for seven months.

The recent pullback has been rather corrective, with natural gas price moving from the overbought territory at an RSI of 72 late last week to 66 as at the time of writing. While it remains elevated, it still has room for further rallying. 

In the short term, I expect Henry Hub futures to remain above $4.00; a level that coincides with the middle Bollinger band and the short-term 25-day EMA as seen on its daily chart. Indeed, a move below this zone will invalidate this thesis. 

In the near term, the range between $4.40 and $4.67 will be worth watching. On the flip side, a pullback past that range will likely activate the lower support level of $4.25.