Oversupply Factors Could Lead to a Fall in Natural Gas Prices

(Continued from Prior Part)

Natural gas futures contracts for August delivery were trading just above the key support level of $2.60 per MMBtu (British thermal units in millions) on July 8, 2015. Gas prices have been trading in a narrow range between $2.70 and $2.90 per MMBtu for 20 days. Oversupply concerns and rising natural gas stocks are driving natural gas prices.

Oversupply concerns and bearish sentiments could drag natural gas prices to the next support of $2.50 per MMBtu. Gas prices tested this level in April 2015. In contrast, renewed demand from electric power plants might boost natural gas prices. The key resistance for natural gas prices is seen at $3 per MMBtu. Prices tested this level in May 2015.

Goldman Sachs estimates that natural gas prices could average around $3.25 per MMBtu in 2H15. In the short term, the price chart for natural gas suggests that prices could fluctuate between $2.50 MMBtu and $3 MMBtu.

The long-term lower natural gas prices negatively impact ETFs like the VelocityShares 3X Long Natural Gas ETN (UGAZ) and the United States Natural Gas Fund LP (UNG). They also impact oil and gas producers like Rex Energy (REXX), QEP Resources (QEP), and Contango (MCF). They account for 2.93% of the Spider Oil and Gas ETF (XOP). These stocks also have a gas production mix that’s more than 59% of their production portfolio.

Browse this series on Market Realist:

• Part 1 - Natural Gas Prices Hit a New Monthly Low before the EIA’s Report
• Part 2 - Natural Gas Inventories Could Rise for 14 Straight Weeks
• Part 3 - Slowing Consumption Puts Pressure on Natural Gas Prices