Natural Gas Hits Two Year Highs and Ends the Week.
Natural gas prices ended the week by establishing new closing and intraday highs in the advance from the November low. The contract for January delivery on the New York Mercantile Exchange traded to $3.777 for a high and ended the session at $3.746, up 1.38%.
Recent weather forecasts for colder than normal temperatures across the US have increased the demand for natural gas, thereby resulting in the latest move higher in prices. For the week overall, natural gas prices rose 9%.
The overall bias in natural gas remained to the upside despite the moves off the highs during trading on Tuesday and Wednesday of this week, given the rise in open interest that has accompanied the recent price gains. This indicates new money entering the market has driven prices higher, typically a bullish indication that suggests the bulk of the price gains would be sustained.
Open interest experienced another increase during Thursday’s advance, rising 1.25%. Another bullish indication for natural gas prices is the recent ability to move higher in the presence of an overbought market condition. Thus, the bias remains to the upside heading into next week. At present, the target for natural gas prices is at the $4.000 level, which is near the approximate area of the gap created in late 2014, as can be seen on the weekly chart.
On the downside, first support is at Thursday’s low, near the $3.500 level. A move to the downside merely in reaction to the current overbought condition is not expected to result in a drop below this level of support. And, given the broader bullish outlook for natural gas prices, any period of weakness appears best used as a buying opportunity.
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