Natural Gas: Short Squeeze Likely Before Short Week Wraps up
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This week’s natural gas futures action indicates that the commodity could continue to experience wild price swings during the first two weeks of 2023.
A steep fall during the last three weeks of December 2022 from $7.108 pushed the natural gas futures into the oversold territory. But Wednesday’s close after hitting significant support confirms a thick presence of bulls below $4.104.
This level has historically provided strong support since the last weeks of Aug. and Dec. 2021 and Jan. 2022. Still, a breakdown was seen in mid-December 2018 amid a tariff trade war between the U.S. and Russia.
Natural Gas Futures Weekly Chart
On the one hand, a European cap on gas prices starting in Feb. 2023 could keep the lid on natural gas prices, but still, the natural gas price cap efficacy is yet to be proved. Those measures could bring natural gas prices to normalcy in the first half of 2023.
On the other hand, changing weather patterns, changing demand-supply, and geo-political equations could test the efficacy of this price cap during the upcoming weeks.
Europe could continue to import liquefied natural gas to rebuild gas inventories once this winter ends, propelling natural gas prices during the second quarter of 2023.
In the weekly chart, a sustained move above $4.451 could propel volatility — especially after the inventory announcement on Thursday.
Analyzing the moves of natural gas since Nov. 2018, I find a decisive zone for natural gas futures between $3.517 — $4.564.
A breakout above this or a breakdown below this range provides a definite long-term directional trend for natural gas futures.
Nobody knows the next move by the most uncertain commodity in the world as the continuity of selling pressure raises doubts over the support due to cold weather conditions, currently prevailing in most parts of the U.S. despite warm weather announcements.
Undoubtedly, a gap-up or gap-down will need confirmation by a sustainable move by natural gas futures below or above a particular price during the upcoming week.
Finally, despite the recent price decline from its 2022 peak, I conclude that natural gas futures could remain bullish during 2023 as the price is still above the 200 DMA in the weekly chart.
