market is ripe for a hike to a double-digit level

Natural gas price hit a fresh 14-year high of $9.54 per million British thermal units (mBtu) earlier on Tuesday before pulling back to $9.26 as at the time of writing. Since the beginning of the year, the US futures have rallied by over 150% as tight supplies and high demand continue to define the market. A fundamental and technical analysis of the commodity shows that double digits are a matter of when rather than if.

Fundamentals

As has been the case in recent weeks, extreme weather in the US remains one of the key bullish drivers of natural gas price. After the heightened heating demand in the past winter, the spring period was expected to give producers some time to build up on the inventories ahead of the summer period. However, the heat waves experienced in the country’s south in past weeks made that difficult.

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Interestingly, meteorologists expect a hotter-than-usual summer this year. For instance, the National Weather Service forecast record temperatures of over 100 degrees Farenheit in the Southwest region over the coming weekend.  

The weather-driven surge in demand comes at a time when inventories remain below a five-year average In fact, according to the Energy Information Administration (EIA), the winter season that ran from November to March resulted in 2,264 billion cubic feet (Bcf) being withdrawn from US storage. This figure is the highest since the 2017-2018 winter period. Besides, it is 10% above the average of the past 5 years.

The agency has further noted that during the past winter season, demand for the commodity surpassed supply by 14.9 Bcf per day. In addition to this report, the EIA’s weekly inventory data scheduled for release on Thursday may further boost natural gas price. In its previous release, stocks were 337 Bcf lower than the 5-year average and 397 Bcf below the level recorded at a similar time in 2021.

Natural gas price technical analysis

Prior to mid-April, the now critical support level of 8.00 had been evasive since November 2008. With the predicted hotter-than-normal summer and low inventories, I expect this level to continue offering steady support to the natural gas price in coming weeks.

On a daily chart, it remains above the 25 and 50-day exponential moving averages. Amid the bullish outlook, the psychological level of 9.00 will be a support zone worth watching in the short term. A decline past that point will likely have natural gas price trade within the range of 8.27 and 9.00 as the bulls gather enough momentum to revive the rally past the latter figure.

On the upside, 9.50 may remain a crucial resistance level in the ensuing sessions. Even so, heightened cooling demand during the US summer season will likely push the futures to $10 in coming weeks.