Natural gas markets experienced a modest decline during Tuesday's trading session, with a loss of just over 2% overnight, only to turn around. The recent struggles in natural gas markets can be primarily attributed to seasonal effects. As we enter the summer season, one of the major drivers of natural gas demand, heating in the northern hemisphere, significantly diminishes. Consequently, it is not surprising to witness the market moving in a choppy back-and-forth manner.
The 50-Day Exponential Moving Average is currently positioned above the market and is expected to provide substantial resistance. Selling opportunities may arise as the market approaches this indicator, particularly if signs of exhaustion become apparent. Looking ahead, it is anticipated that the market will oscillate between the $2.00 support level and the $3.00 resistance level until the end of summer. This range, often referred to as the "summer range," is a common occurrence during this period.
However, occasional heat waves in the northern hemisphere can sporadically drive up natural gas prices. While these instances may present selling opportunities, the real significant move is anticipated to occur later in the summer. European countries will need to refill their natural gas storage in preparation for another winter without Russian gas. This factor is likely to contribute to increased prices in natural gas as we approach the end of summer. It would not be surprising to witness a surge towards the $4.00 level during that period.
Moreover, it is important to note that the $2.00 level serves as a strong support zone, extending down to the $1.80 level. Consequently, it can be viewed as a range rather than a specific price point. Going forward, fading rallies, which means taking advantage of price increases as selling opportunities, is favored. This approach is based on the belief that the demand for natural gas will continue to be affected not only by seasonal effects but also by industrial demand, potentially influenced by a slowing economy.
In summary, natural gas markets have encountered challenges recently due to seasonal effects and a decline in demand. The market is expected to exhibit volatile behavior throughout the summer, with prices fluctuating between the $2.00 support level and the $3.00 resistance level. Traders should remain cautious and consider fading rallies. However, a significant price movement is expected later in the summer as European countries replenish their natural gas storage. It is worth noting that the $2.00 level provides strong support, and the market may experience higher prices as we approach the end of summer. Considering the seasonal and industrial demand factors, fading rallies is a prudent strategy.
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