The price of natural gas in the US had collapsed by almost half in just over two months and is back to July levels when the European energy crisis’ rally had started.
Interestingly, gas prices have also remained under increased pressure during periods of rising oil, indicating more selling. The history of recent years suggests that sharp spikes act as the final stage of a rally, and then we see the price returning to the starting point of an upward momentum or even lower. In this long-term pattern, the price from the current $3.75 has the potential to move down to $2.50 or even back to the multi-year support levels near $2.00 during 2022.
However, locally, a 45% drop from the peak in early October with a sharp acceleration late last month looks excessive and needs a correction. The prices on the New York Mercantile Exchange have barely broken through its 200 SMA and touched the oversold area on daily RSI charts. A stabilisation at those levels could start a corrective bounce.
A new round of rising energy prices in Europe is also on the buyers’ side. Moreover, the cost of oil has added 15% to the lows of early December, contrasting with a 20% fall in gas. This divergence is rarely sustained unless caused by supply problems.
Thus, short-term traders should take a closer look at natural gas, which is poised for a corrective bounce to $4.5-4.7, following its oversold trend of recent weeks.
