In a November 12, 2024, Barchart article on the natural gas futures arena, I concluded:
Natural gas offers value below $3 in November 2024. The energy commodity has traded between $1.60 and around $10 per MMBtu since August 2022. With the energy commodity closer to the low, the odds favor a recovery rally as the market moves into the peak demand and inventory withdrawal season for 2024/2025.
January NYMEX natural gas futures prices settled at $3.133 per MMBtu on November 12. After reaching $3.639 per MMBtu on November 22, January natural gas futures ran out of upside steam despite the start of the peak demand season during winter.
Natural gas rallies
After trading to a $3.656 per MMBtu high on October 4, volatile NYMEX natural gas futures for January delivery fell 23.4% to a $2.80 low on November 4, where they found a pre-peak season low.
The daily chart shows the recovery that has taken natural gas back to the $3.639 per MMBtu level on November 22. The energy commodity fell short of the $3.656 technical resistance level where it turned lower, probing below the $3 level on December 4, an trading around $3.07 on December 6 as the peak 2024/2025 heating season is underway.
Inventories experience the first decline during the week ending on November 15
Natural gas inventories across the U.S. experienced the first decline of the withdrawal season for the week ending on November 15, marking the start of the 2024/2025 withdrawal season, which tends to run through March.
The chart shows that at 3.937 trillion cubic feet, stockpiles were 4.9% above the level in late November 2023, and 7.8% over the five-year average for the same time of the year. Meanwhile, natural gas inventories peaked at 3.972 tcf at the end of the 2024 injection season, above the 2020 3.958 tcf high. The bottom line is that there is plenty of natural gas in stockpiles across the United States to meet winter demand.
Levels to watch on the January futures
While natural gas prices have recovered from the most recent low, they remain in the bearish trend that began in August 2022 when they rose to a high around the $10 per MMBtu level.
The monthly continuous contract chart shows that while the recent rally took natural gas to the $3.639 level, the price action stopped short of a challenge of the October 2023 $3.643 high and technical resistance level that would end the multi-year bearish trend.
Meanwhile, the weekly continuous NYMEX natural gas futures chart displays a bullish picture for the energy commodity as enters the 2024/2025 peak demand season. With the price above the $3.00 per MMBtu level, the first technical support level is at the November 2024 $2.514 continuous contract low, with resistance at the $3.643 per MMBtu level. The weekly continuous contract chart highlights that the energy commodity has made higher lows and higher highs since the February 2024 $1.60 per MMBtu low.
Natural gas prices are volatile and can shock
Natural gas is one of the most volatile commodities trading on futures exchanges.
The quarterly continuous contract chart illustrates natural gas futures’ explosive and implosive price action since they began trading on NYMEX in 1990. As always, the weather across the U.S. over the coming weeks and months will determine the heating demand and the pace of natural gas inventory withdrawals. Moreover, increased demand from Europe, if the temperatures drop, could cause demand for LNG to rise as Europe could turn to the U.S. to replace Russian natural gas deliveries. Russia has used natural gas and energy as an economic weapon against “unfriendly” countries supporting Ukraine.
The BOIL ETF has done well since mid-November- Remember those price and time stops
The most direct route for bullish exposure in the U.S. natural gas market is the futures and futures options on the NYMEX natural gas contracts. The U.S. Natural Gas Fund (UNG) is an unleveraged ETF that tracks NYMEX natural gas futures prices.
Meanwhile, the Bloomberg Ultra Natural Gas 2X ETF product (BOIL) turbocharges the price action in natural gas futures and the UNG ETF. The most recent rally in NYMEX natural gas for January 2025 delivery took the price 30% higher from $2.80 on November 4 to $3.639 per MMBtu on November 22. Over the same period, the UNG ETF rose 25.7% from $12.35 to $15.52 per share.
The turbocharged BOIL ETF rose 50.5% from $35.68 to $53.70 per share over the same period. BOIL’s leverage comes at a price, which is time decay. If natural gas prices move lower or remain stable, BOIL will lose value as it employs options and swaps to create its leverage. Therefore, any risk positions using BOIL require time and price stops. The other factor to consider is that UNG and BOIL only trade when the U.S. stock market operates, while natural gas futures trade around the clock. Therefore, the ETFs can miss highs or lows during off-hours. The KOLD ETF is a leveraged product that moves higher when natural gas prices decline and lower when they rally.
Natural gas futures are at the beginning of the peak heating season. Inventories are at high levels, but the weather is the critical factor for heating demand and the path of least resistance of prices over the coming weeks and months. Natural gas is a highly volatile commodity, making trading instead of investing optimal. Approach the energy commodity with a risk-reward plan that protects capital while maximizing profit potentials
