Oversupply Market: Crude Oil and Natural Gas Prices Diverge

(Continued from Prior Part)
Natural gas prices declined for the fifth day
NYMEX-traded July natural gas futures continued their losing streak for the fifth day. Prices are trading in a downward trending channel. Increasing natural gas rigs and oversupply concerns are impacting natural gas prices.

Key support
Natural gas prices are following the long-term downward trend. Oversupply factors and the increasing stockpile will push natural gas prices to the key support of $2.50 per MMBtu (British thermal units in millions). Gas prices tested this mark in April 2015. In contrast, resistance is seen at $3.20 per MMBtu. Prices hit this level in January 2015.

The bearish sentiment and downtrend channel suggest that natural gas prices could fluctuate between $2.50 and $3 per MMBtu in the short term. The EIA (U.S. Energy Information Administration) estimates that natural gas prices could average around $2.93 per MMBtu in 2015 and $3.32 per MMBtu in 2016.

ETFs’ returns like the United States Natural Gas Fund LP (UNG) and the VelocityShares 3X Long Natural Gas ETN (UGAZ) were impacted due to declining natural gas prices.

Similarly, oil and gas exploration and production companies like ExxonMobil (XOM), Occidental Petroleum (OXY), and Chevron (CVX) are also affected by falling prices. They account for 3.27% of the Spider Oil and Gas ETF (XOP). Combined, these stocks’ production portfolios have a 41% natural gas production mix.