MUMBAI (Commodity Online): Natural gas is trading close to a 28-month low as warmer-than-normal winter weather in major gas-consuming regions in the U.S. dampened demand expectations for the heating fuel.
In MCX prices have fallen more than 31%since December as prices which were hovering around 190 in December 2011 have fallen to nearly 120 recently. In NYMEX prices traded below the psychologically key $3 threshold as sentiment on the heating fuel demand remained downbeat.
What to watch out for
Natural gas futures have closely tracked weather forecasts in recent weeks. Below-normal winter temperatures increase the need for gas-fired electricity to heat homes, boosting demand for natural gas. But mild winter weather coupled with high inventory and production levels in the U.S. have kept prices depressed near 28-month lows in recent weeks.
What to expect
Natural gas prices have dipped to very low levels and some cold weather is expected in Midwest which can give support to the natural gas prices .Moreover bounce back is expected as prices have fallen too fast and too rapidly and producers also have started reducing production levels. With dip in temperature and increase in heating demand and declining rig count will support its prices and they can test Rs 160-Rs 170 in medium term.
Recommendation
Investors can take long term fundamental buy position in MCX Natural gas (March contract) in range of Rs 136-Rs 138 for the target of Rs 165-Rs 170 with stop loss of closing below Rs 120
Source: SMC technical report
