Natural gas prices have experienced a dramatic decline over the last few days, and earlier today, the price reached a low of 1.829, a 19.11% drop over the previous five days. From its November high, the price was down by 35.94%.
Oversupply is the main reason for the slide in natural gas prices. At the current prices, producers are not profitable, according to Bloomberg News.
The natural gas industry could have possibly, be able to balance the supply themselves; however, as a byproduct of shale oil production, crude oil producers are extracting natural gas. The excess natural gas is sometimes being burned off by the crude oil producers as they occasionally need to pay to get rid of the gas.
Devin McDermott, an analyst at Morgan Stanley, told Bloomberg News that oversupply is not just a US issue, it is a global issue with oversupply in Asia and Europe. Going forward, there is a high risk that gas oil producers will run into financial problems.
Read our Best Trading Ideas for 2020.
Technically, the price is oversold, but the trend will remain downwards as long as the price trades below the January 14 high of $2.25. A bounce to the August low of $2.03 will reduce the oversold conditions, but a bounce to that level might encourage short-sellers to enter.
The next support level is the March 24, 2016 low of $1.76, followed by the March 2016 low at $1.609.