Short-term outlook negative for MCX-Natural Gas

Natural Gas prices are under pressure. The gas price, which was stuck in a narrow range, tumbled over 4 per cent on Monday. A weather update from the US, indicating that the early summer in some regions could be cooler, has triggered this sharp fall in the gas price. Cool weather will reduce air conditioning usage, which in turn will reduce the demand for natural gas. US natural gas prices slumped 5 per cent from $3.03 per mmBtu to close at $2.89 per mmBtu on Monday.

On the domestic front, the Natural Gas futures contract on the Multi Commodity Exchange (MCX), which moves in tandem with US gas prices, fell 4.1 per cent on Monday to close at ₹187.8 per mmBtu. The MCX contract is currently trading at ₹186.4 per mmBtu. Monday’s sharp fall has increased the downside pressure on the gas prices and has paved the way for a further fall.


The MCX-Natural Gas contract has been on a strong downtrend ever since it made a high of ₹220 per mmBtu on May 12. The fall that began from this high continued below the psychological support level of ₹200 earlier this month. Since then the contract had been stuck in a sideways range between ₹190 and ₹200.

This sideways consolidation suggests that the contract has failed to gain fresh buying interest to take it back above ₹200. The subsequent fall below ₹190 on Monday may now add more downside pressure on the contract. It is also likely to bring fresh selling interest.

Key resistances are at ₹194 and ₹200, which are likely to cap the upside. A fall to test the 100-week moving average support at ₹178 is possible in the short term. A bounce from this support can trigger a relief rally to ₹190. But if the contract breaks below ₹178 decisively, it will increase the possibility of the fall extending to ₹170 thereafter.

Short-term traders can make use of an intermediate bounce to go short at ₹192. A stop-loss can be placed at ₹198 for the target of ₹180. Revise the stop-loss lower to ₹190 as soon as the contract moves down to ₹187.

The region between ₹200 and ₹205 is a strong resistance for the contract. The outlook will turn positive only if it breaches above ₹205 decisively. But such a strong upward move looks less likely at the moment.

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

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