From the July 01, 2011 issue of Futures Magazine • Subscribe!

Natural gas feeling the squeeze

Although it has been trending higher, natural gas has been fairly stuck in a small trading range a lot of the last year. As new methods have made it easier than ever to extract natural gas, economic conditions have continued to deteriorate making it very difficult for sustained demand to develop.

Phil Flynn, energy analyst at PFG Best, says “Natural gas prices are in a trading range of $4-$5. We’ve had a few weather events that have driven prices up or down, but basically inside of this $1 range. It’s going to take a major event to break out of the high side because of shale gas production and the weak economy. Even hurricanes don’t have that big of an effect because of the on-shore production.”

Flynn says much of the recent run-up in nat gas prices were because of nuclear power plant maintenance after the Japanese earthquake. As those come back online, it should take a lot of the demand out of the market.

He says to watch oil prices and the weather going forward. If we are able to get through July without any major weather developments, Flynn is calling for natural gas to move into a $3-$4 trading range. In the shorter-term, he pegs support at $4.15 and resistance around $4.50.

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