Is US nat gas just breaking out of a major bottom?

European energies and oil had an unbelievable run in the past 2 years. But in the same period the US natural gas was going nowhere. It was stuck in a narrow range. I’ve heard so many people it won’t and can’t go up anymore.

But where have I heard this before? Right… the same story was going on with the European energies a year or so ago. Please read my past post where I write about a potential bottom there. And they gave us such a great show this year. I believe something similar could happen with the US nat gas in the months to come.

And let me start with some fundamentals. They’re tight. This tweet from Ole sums it up very well.

Strong week for #natgas as it returns to resistance just below $3/therm. Up on lower than expected Chinese tariffs and stocks 18% below the seasonal av. with just a few weeks left before winter demand sets in. Rising prod. being met with rising demand and rising exports #OOTT pic.twitter.com/OhSXHoGVk1

— Ole S Hansen (@Ole_S_Hansen) September 21, 2018

The most important thing that stands out to me is very low inventories heading into the winter. Should the US get a cold start of the winter, then things could really get going. Other gas hubs are already under a lot of pressure and it’s really hard to imagine supply can meet a high demand. But going from where? 

Let me show you a chart of November 2018 contract.

We see that the prices were in a steady down trend until the beginning of 2016. Since then the price hasn’t moved higher than $3.05. And the October contract is just breaking out above this resistance now, but is also expiring tomorrow. The Nov contract is also closing above its previous swing high and is so breaking out, but we need to see a confirmation in form of a daily close above $3.05.

Here is also a rolling front month contract. It’s not nearly as clean, but is suggesting, similarly to the Nov (or Dec) contract, that the first
leg higher could target $3.5 at least. 

I know that many of you don’t have a futures account, so here are two alternatives. First is $UNG United States Natural Gas Fund ETF that has already broken out. 

And the second one is $FCG First Trust Natural Gas ETF that is lagging a bit and we’re yet to see a breakout. 

So, should the November contract close above $3.05 then we have a case that the US nat gas market has likely formed a major bottom, which could take prices higher, perhaps much higher in the years to come. Higher oil prices and a cold winter could really give them a boost.