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Thursday, April 5, 2012

The Curious Case of Natural Gas!

Natural Gas is a commodity which intrigues me to no end. It is one of the commodities actively traded world-over, also at MCX Commodity Exchange, India and has good liquidity to trade. Natural Gas is perhaps the only commodity, that too from the Energy segment, that is in a strong multi-year Bear Grip. In case you bothered by Petrol prices that are going up every month, you will be shocked to know that NatGas prices have been declining from past 4 years, almost on a monthly basis. So what has gone so wrong for Natural Gas?

As you can see from the 5 year chart of Natural Gas above, it is currently trading at a five year lows, with its highs in range of Rs 600 per unit (MMbtu) to right now where its languishing at about 110 per mmBTU. This is about 80% crash in a price of this Energy commodity. Pretty hard to digest that!

The real reason in the crash is fundamental in nature. Technology in NatGas drilling has imploded over the past few years and now its possible to explore Shell Gas resources which were hithertho not possible to exploit commercially. Hence this has created a supply glut.

We being technical and fundamental analysts, try to find if there is a way to overcome this extreme negativity about this commodity and way to profit from this. Lets look at a shorter term chart and look at trends and possibilities:

The daily chart shown above, shows the double bottom structure in the price of Natural Gas with the corresponding MACD and RSI showing a upward momentum. This is a good signal for followers of NatGas that there is a possibility of short term upmove in this commodity and that for now, the bottom has been reached. Another structure to note is that prices need to move beyond 130-140 and post that its possible to reach the levels of 180-190 for Natural Gas.

Although this blog is focused on NSE and Stock Markets, sometimes we will review some of these curious commodities to stay in touch with this important world. Happy investing and trading.

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