On August 11, the US Energy Information Administration (EIA) — the statistical and forecasting arm of the Department of Energy — revised its forecast for the average natural gas price in the third quarter downward to $2.87 per million BTU, a reduction of 50 cents from its prior estimate. The adjustment reflects rising domestic production, which has been running at or near record levels thanks to associated gas output from oil-rich shale basins, and growing inventories. Together, these factors could produce the largest gas stockpile seen in a decade heading into the heating season, when demand from residential heating and power generators typically surges.

Additional pressure on the supply-demand balance stems from planned maintenance at the Freeport LNG export terminal in Texas, one of the largest US liquefaction facilities by capacity. The maintenance is expected to reduce demand for gas used in the liquefaction process, effectively keeping more supply on the domestic market at a time when storage is already ample. On the global stage, LNG trade had already contended with shipping disruptions in the Strait of Hormuz during July, underscoring the market's persistent vulnerability to geopolitical developments and the competing forces of domestic glut versus international demand for American LNG.

Technical Analysis of Natural Gas

A descending wedge pattern has taken shape on the XNGUSD four-hour (H4) chart. The upper boundary of this formation was breached to the upside by a move that commenced on August 10, following a gap that occurred on notably below-average trading volume — a factor that raises questions about the strength of the breakout.

Subsequent price behavior has settled into consolidation within the current volume profile. The price is oscillating between the Point of Control (POC) at $2.765 and the profile's upper boundary at $2.810. A resistance level marked in red at $2.990 is positioned to intersect the price near the base of the pattern.

If the breakout proves false, the price would need to work through the market density embedded within the profile. A break below the lower boundary at $2.700 could see prices meet resistance near the pattern's apex at $2.630.

The RSI + MAs indicator currently displays readings of 58, 60, and 54. While the oscillator and the fast moving average have both moved above the upper threshold of the neutral zone, the indicator's slow moving average has not yet crossed beyond it, leaving the overall signal incomplete.

Key Takeaways

The combination of low breakout volume and an unresolved RSI + MAs reading casts doubt on whether the current ascent can be sustained. The EIA's more conservative price forecast, set against a background of record-level inventories, adds fundamental weight to the argument that upside potential may be limited.

Source: FXOpen Blog