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Natural gas prices were on a free fall for more than three weeks. The US natural gas prices on the New York Mercantile Exchange (NYMEX) spiked to around $3.6 per mmBtu in the last week of January and has reversed sharply lower thereafter. The gas prices have been falling continuously since then and have plummeted 30 per cent from the high to make a low of $2.53 last week.
However, the prices have bounced from this low and is currently trading at around $2.64. Erratic winter in the US coupled with increase in supplies had triggered the sharp fall in gas prices over the last three weeks.
On the domestic front, the Natural gas futures contract on the Multi Commodity Exchange (MCX) surged to a high of ₹230.5 per mmBtu on January 24 and has come-off sharply from there in tandem with the global gas price. The MCX contract tumbled about 30 per cent to make a low of ₹162.5 last week. The contract has bounced from there and is currently trading at ₹171.
The upward reversal in the gas prices this week is technically significant as the reversal has happened from a key long-term base. This increases the possibility of the natural gas prices moving higher in the coming weeks.
Outlook
The level of $2.55 per mmBtu is a crucial long-term base level for the Nymex Natural gas prices. This level has been limiting the downside since June 2016. If the Nymex Natural gas prices manages to sustain above $2.55 in the coming days, the downside pressure may ease. In such a scenario, there is a strong likelihood of the prices rallying towards $2.9 and $3 in the short-term. Further break above $3 will then pave way for the next target of $3.20 and $3.30.
The outlook will turn bearish only if the prices breaks and closes decisively below $2.50. Such a break will bring renewed downside pressure and drag the prices lower $2 or even lower levels thereafter.
On the domestic front, the region between $165 and $163 is a key support for the MCX Natural gas contract. As long as the contract remains above this support zone, a rally to ₹185 or 4195 is likely in the coming days. Cluster of resistances are poised in between ₹185 and ₹195. Inability to breach this resistance zone can trigger a pull-back move to ₹170. But a strong break above ₹195 will boost the momentum and take the contract higher to ₹210 and ₹215 over the medium-term.
Note: The recommendations are based on technical analysis and there is a risk of loss in trading.
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