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Natural gas breaks out of the selling spree – will gas finally rally?

It looks like the short-term upswing on gas could continue amid colder weather.

Bear market seems over, for now

Following Wednesday’s drop to the lowest level since September 2020 at $1.967, which marked the bottom of a three-month-long gas bear market triggered by exceptionally warm winter weather, natural gas has jumped notably. The price of natural gas increased by more than 1% on Thursday as the short-term trend became bullish. During the start of the US session, gas was trading at $2.85.

Short covering in the futures market has been ramping up since last Friday, providing the gas market with ample buying pressure,” Houston-based energy markets advisory Gelber & Associates said in its daily note on gas futures.

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A steady increase in volumes is entering the Freeport LNG facility in Texas, which has been gradually resuming regular operations since a fire in June. This has also been positive for gas bulls.

During seven trading days, the front-month futures contract for the heating fuel has gained 85 cents, or 40%, as of Monday’s closing. Moreover, analysts predict an increase in the US heating demand over the following two weeks as a result of colder-than-normal temperatures in early March.

Mergers and acquisitions

Enbridge Inc said it would acquire a gas storage facility in the US Gulf Coast region for $335 million. This acquisition will be from Brookfield Infrastructure Partners and Crestwood Equity Partners.

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The Tres Palacios gas storage facility supports Texas and Mexico’s gas-fired power generation. This transaction is anticipated to conclude in the second quarter. The pipeline operator also stated that it has chosen to proceed with the $240 million Enbridge Houston Oil Terminal development project.

A clear breakout

In terms of technical analysis, the price has definitely surpassed the previous swing highs in the $2.60 range, confirming the bottom at $2 and beginning to develop positive momentum. The next objective for bulls might be the psychological level of $3, with a potential rally to the previous consolidation zone at $3.50.

Conversely, if bears were to return to the market, $2.60 would serve as support. The price of natural gas might return to $2 if that support is not maintained.

Natural gas

Natural gas futures 1D chart, source: tradingview.com, author’s analysis

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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