Gas Riding Golden Wave Hints at Extended Rally for U.S. Market

(Bloomberg) -- A wave-like pattern in U.S. natural gas prices is signaling that a recent rally may not be over just yet.

Gas futures have made some unusual swings related to Fibonacci retracement, a trading tool that uses certain price levels to predict whether the market will rise or fall. Since February, gas has tended to ratchet higher or lower to the 61.8 percent Fibonacci retracement, called the “golden ratio” because it’s a mathematical ratio often found in nature. The pattern means prices may surge about 6 percent to $3.211 per million British thermal units, said Walter Zimmermann, chief technical analyst at ICAP Technical Analysis.

Gas bulls and bears have battled for market dominance over the past few months, weighing stagnant production from shale basins and rising exports against a lingering stockpile glut and the potential for a rebound in output. Weather forecasts, meanwhile, have vacillated between mild conditions that would limit power plants’ demand for the fuel and scorching temperatures that would keep air conditioners humming.

“In the old days, natural gas used to be the wild man of the energy complex -- it would blow right through the six, one, eight,” Zimmermann, based in Jersey City, New Jersey, said in a telephone interview Wednesday. But now, “you have a market tamed by surplus,” leaving prices to follow a more predictable path.

Ten of 16 traders and analysts surveyed by Bloomberg News expect gas prices to climb as July heat stokes demand and limits seasonal stockpiling efforts. The rest were split between being bearish or predicting prices will hold steady.

Gas futures have dropped 18 percent this year and are heading for a second straight quarterly decline. Eventually, gas will break the golden technical trading pattern and follow the seasonal trend, Zimmermann said. He sees prices climbing in the near term and then slowly grinding lower into September, as cooler weather limits demand from electricity generators.

“Generally that seasonal cycle down doesn’t become apparent until later in the summer, as time begins to run out for the heat,” he said.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Christine Buurma, Carlos Caminada