Natural gas has been in a massive downturn for several months in a row. In March, 2020 we saw its price hit the lowest levels in 25 years, as the coronavirus pandemic crashed the demand. However, the natural gas market was already depressed because of milder than usual weather conditions and record production levels in the US.
At the beginning of April, the price of gas is still hovering around $1.60/MMBtu. Are we finally getting to a point where we will see a significant base forming? It seems that the bottom is not quite found yet, but the gas price is getting closer and closer to it.
Trade US Natural Gas Spot CFD
Natural gas price analysis
In March the natural gas downtrend continued and the price slipped below $1.60, which has been the lowest gas price level since the mid to late 90s. In April the weakness continues and the question remains, in which way will be the next major move.
Let’s make a quick catch up of what happened with gas during March 2020 and find out the major factors driving in the big levels to watch out for in April.
Natural gas price drop: price hit the lowest level in two decades
It has been a rough time for the energy market over the past few weeks. In March 2020 the natural gas market slipped a bit lower again. It ended February at around 1.75 and fell below 1.60, which are incredibly weak levels that haven’t been seen for two decades. There are several major factors, we should note analysing the current gas price levels:
Coronavirus dampens the world’s natural gas demand
The spread of coronavirus and the threat to the world’s economy dampened down the global requirements for energy. Although oil has been a much bigger casualty in terms of percentage falls over the past few weeks, natural gas hasn’t escaped these slides too, trading at its worst level since 1995.
Natural gas stocks are above five-year average
Coming into this year analysts were still bearish on the outlook for natural gas saying that supply will continue to outstrip demand throughout 2020. If we look at natural gas stocks, inventories remain boated. At the moment, stockpiles of gas are 17 per cent above its five-year average, so there is no drop from the supply side.
Recession = production balance?
There is one bullish speculation that if the world’s economy does eventually fall into global recession or at least a major global slowdown due to the spread of coronavirus, we could see the decline in natural gas production in 2020. This can contribute to a supply/demand balance towards the end of the year and going forward into next year.
Let’s take a closer look at natural gas price analysis and see how to trade it with CFDs in a bearish market environment in a short video by Capital.com market strategist David Jones.
Natural gas analysis in April 2020
Natural gas chart analysis
If you look deeper into the natural gas price trend chart, there are some big levels traders should watch closely. The first very important level is just above $2 to around $2.02 or $2.03. We have already seen a couple of attempts to break through this level in recent weeks and they failed. If gas eventually breaks through it, we could see the start of a new bullish trend – if not a full recovery, then at least a sustainable short to medium-term push higher.
On the downside, a big level to watch is the most recent low of natural gas – down to around $1.58 or $1.55. If the price breaks through it, we can expect further weakening. So far, this level has proved to be a good floor.
Going back to the chart and focusing on the price action we can see the natural gas prices falling since November. Now we have been five months into this trend and it is still down. The price has declined from just shy of $3 and has almost halved into March, trading as low as $1.58.
Natural gas price analysis: market sentiment
Today, the natural gas price is still weak and it seems reasonable to speak about a more or less sustainable comeback only if the price manages to break the mid-December highs of around $2.35, but for now the market is still under pressure.
Given that the natural gas price has already hit its 25-year low, there should be a point where we do see a recovery coming back in. A bullish RSI divergence can serve as an early clue that the weakness is running out of steam and the price will eventually rebound. Take your time to be patient and wait for the trend to reverse to see whether there is some strength in natural gas in 2020.