Weather forecasts in the US and Europe appear to be balancing out each other. According to reports, it will be colder than usual in the US in May, resulting in higher natural gas demand for heating, whereas it could be warmer than usual in Europe, resulting in lower demand expectations. However, Russia being one of the largest producers in the world and the largest supplier to Europe, the prices are subject to a geo-political risk premium, which is set to stay for a while.
The natural gas futures on the Multi Commodity Exchange (MCX), after falling from around ₹615 to ₹490 two weeks back, have recovered to the current levels of ₹560. The price level of ₹575 is a hurdle, but we expect the contract to surpass this level and retest the prior high of ₹615.2. It can even rally past that level and move towards ₹650 and then to ₹680 in about three months.
The above has been our expectation since the past three weeks, and so, we recommended going long in three legs with an average buy price of ₹518 with an initial stop-loss at ₹475. Traders can continue to hold this position. But revise the stop-loss up to ₹510 once the contract moves above ₹575 and then lift it up to ₹570 when the futures break out of ₹616. When the price touches ₹650, book three-fourth of your holdings and tighten the stop-loss to ₹600. Liquidate the remaining longs at ₹680.
For fresh positions, stay on the fence for now and either go long with a stop-loss at ₹475 is price drops to ₹520 or buy with a stop-loss at ₹510 if the contract decisively breaks out of ₹575. Adjust the stop-loss as mentioned above.
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