Market Strategy

Outlook bullish for natural gas

Gurumuthy K. | Updated on August 24, 2013

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Natural gas, a main substitute for coal in electricity generation is one of the important sources of energy. The US and Russia are the top producers. As of 2012, 187.3 trillion cubic metres is the world reserve that could meet the global demand at current rate for the next 56 years, says a study by British Petroleum. The US Energy Information Administration (EIA) projects the world consumption to increase by 64 per cent from 113 trillion cubic feet (tcf) in 2010 to 185 tcf in 2040.

India relies on import to meet part of its demand which is on the rise since 2004. In spite of a 23 per cent production drop in the last two years, the Oil Minister Veerappa Moily expects the output to grow by 67 per cent in the next three years.

Govt’s move to help

The Government’s proposed move to double the natural gas price from $4.2 to $8.4, if implemented, can bring in more investment in to this sector for new exploration to boost the domestic production.

In this week’s dissector we take the natural gas contracts traded in the New York Mercantile Exchange (NYMEX) — US and the Multi Commodity Exchange (MCX) — India. The NYMEX contract has risen 11.38 per cent from its low of $3.129 recorded on August 8 and has closed at $3.485 for this week.

On the other hand, on MCX, it has moved up by 16.89 per cent from its low of Rs 192.40 recorded on August 8. It is currently trading near Rs 224.

Let us look at the future outlook for these two contracts.

Long-term view

The NYMEX contract has strong supports near $3.20 and $2.80. The chances of testing these supports cannot be ruled out if the contract fails to break above $4.20. If $2.80 is broken, then it can target $2. Resistance on the upside is seen in $4-$4.20 region. A strong break above $4.20 can target $5 initially where the contract can halt for a while. A break above $5 can take the contract higher to $6.41.

The MCX contract has seen a strong rally from the April 2012 low of Rs 99.50. It is now facing resistance near Rs 240 and is consolidating sideways between Rs 190 and Rs 240 since April this year. If Rs 240 continues to resist further rise, then the contract can either continue this sideways consolidation or can fall to test Rs 180-170. A fresh rally can begin from here targeting Rs 270-290. Next higher target lies in the zone between Rs 320-340.

Medium-term view

The MCX contract has seen a strong and sharp rise in the last two weeks from the low of Rs 192.40 recorded on August 10. The strength of this rise looks capable of breaking the Rs 230-240 resistance region. As such a rise to Rs 260 seems to be on the cards. However, failure to break above Rs 240 can pull it down again to Rs 210-200.

Short-term view

The MCX contract has good immediate support at Rs 211. While above Rs 211, a rise to the important Rs 235-240 resistance region looks likely. Whether this resistance gets broken or not will decide the further direction. A break above Rs 240 will be very bullish. On the other hand, if Rs 240 holds, then Rs 215-210 can be revisited.

>gurumurthy.k@thehindu.co.in

Published on August 24, 2013

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