US Gas Overbought

Gas prices on the NYMEX are adding for the 11th trading session of the last 12, renewing their highs since October 2008.

US gas exchange prices have risen by a third since the beginning of the month and more than doubled since the beginning of the year in response to a surge in demand in Europe and rising oil prices. Companies in Europe and Asia are set to cut their purchases of Russian energy as fast as possible, pushing prices up.

While the fundamentals are tilting toward later growth, technical analysis increasingly points to overbought conditions, so the likelihood of an imminent correction.

In the monthly candlestick chart, the RSI is entering overbought territory (>70), which it has done only six times in the past 20 years. In all cases, prices declined sharply in the following month, or we even saw a fundamental long-term reversal. Thus, it is likely that we could see a bear attack by the end of this month.

On the daily charts, the RSI has risen to 88. The last time it was higher was in 2018 briefly, which was also near price peaks.

The price frenzy was also fuelled by news of falling oil and gas stocks. However, seasonality is strong in gas, and inventories reach their lowest just in the first days of April. We saw a rise last week, marking the first signs of a trend reversal.

However, in the longer term, the current gas price situation lays the foundations for a new gas renaissance in the USA, and it should lead to a recovery in production rather than a price hike.

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