Prices Extend Gains

Prices continued the gains that commenced after July 4th, closing at a four week high. The run took prices over the 20 Week SMA (closing basis) after closing below it for the last three weeks. Over the last fifteen weeks (since early April), prompt gas has traded an average range of $1.334, during the week and only four of those weeks traded less than a dollar from low to high. Coincidentally, the average daily closing price for those seventy trading days is $7.366, the average weekly closing price $7.279. Hedging and speculation require levels of risk management and approaches impossible when the gas market trades nearly 20% of the average value of the contract each week. The inability to manage risk exposure causes participants to withdraw from the market, which further reduces open interest and liquidity. Perhaps volatility will diminish over the next couple of months as prompt gas constructs a series of higher lows and lower highs, developing the summer range discussed previously.

The market has been here before recently. Look at the chart above, and notice the five weeks in December ’21 as the declines were dramatic up to a point and then a “range” developed, creating the consolidation for the break out above in January ’22. This period also had a decline in volume (lower half of the chart) until prices broke out and the volume exploded. A similar picture can be drawn from the current market (though only four weeks) as price consolidated (range trade) only to develop the momentum to move higher. Similar to last December, prices may not “take off” from here but any type of retracement to test initial support at $6.80ish and beyond around $6.42-$6.50 (spot) should be respected.