Gas prices heading toward closing the January gap

US natural gas prices hit new 4-month highs this week. The bullish trend that has been in place since mid-April has brought the price back above the 2 and 2.25 levels. Buyers of natural gas now face another target at 2.5, where an unclosed gap was formed during the January collapse. The improved news background in the gas market may make this task easier.

The large surplus of natural gas in the US is gradually being liquidated. At the end of the heating season, it was more than 40% above the 10-year average, but now the gas surplus has fallen to 31%. Cheap fuel has boosted demand, and producers have cut their output. US gas production fell from 98.1 billion cubic feet per day to 97.2 billion cubic feet per day in May, LSEG reported. Production levels are down nearly 5% from last November's all-time high.

Rising LNG exports are also helping to reduce the US gas surplus. LSEG officials said the Freeport plant has returned to normal operations after maintenance was completed. Specialists estimate that all 3 production lines at the plant are operating near maximum capacity. Barring any new accidents, Freeport LNG can produce up to 15 million tons of LNG per year, removing the supply overhang from the US gas market.

Overseas, demand for the liquefied fuel appears stable. PetroChina executives said it is possible that China could set a new record for LNG imports this year. The volume could reach 80 million tons, an annual increase of 12%, and exceed the 2021 peak of 78.8 million tons. China has already received 20 million tons of LNG in the first quarter, and the rate of growth in purchases should accelerate as the fall approaches.

The current rise in gas prices is smooth enough to avoid the emergence of overbought conditions on technical indicators. Therefore, the 2.5 level is attainable in the very near future.

Consider the following trading strategy:

Buying gas at the current price. Take profit – 2.5. Stop loss – 2.25.