Natural gas prices have been volatile the last couple of weeks. Gas prices witnessed a sharp fall in December. The US natural gas prices tumbled 20 per cent in December from a high of $3.22 per mmBtu to a low of $2.57.

Supply glut coupled with warm weather at the beginning of the winter season in the US triggered this sharp fall. However, droping temperatures has helped prices to recover from this low to the current levels of $2.85.

On the domestic front, the natural gas futures contract on the Multi Commodity Exchange (MCX) tumbled 21 per cent in December from a high of around ₹208 mmBtu to a low of ₹165. The contract has reversed higher from this low and is currently trading at ₹185.

Outlook

The bounce-back move from the December low of $2.57 on the US natural gas prices is technically significant. This upward reversal has happened from a key long-term base level of $2.5. Immediate resistance is at around $3. If gas manages to breach $3 decisively, it can rally to $3.3 initially. Further break above $3.3 can take it higher to $3.5.

Prices will come under renewed selling pressure for a fall to $2.2 and $2 only if it declines below $2.5 decisively

On the domestic front, the MCX natural gas contract has a key resistance in the ₹195-₹200 zone. A strong break above ₹200 will ease the downside pressure. Such a break can take the contract higher to ₹220 initially. A break above ₹220 will then increase the possibility of the rally extending further to ₹250.

Crucial support is in the band between ₹168 and ₹165. A strong break below ₹165 can bring fresh selling pressure. Such a break can take the contract lower to ₹150 initially. It will also leave open the possibility of the contract revisiting the previous lows of ₹110 over the medium-term.

Note: The recommendations are based on technical analysis and there is a risk of loss in trading.

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