That counter is natural gas.
Natural gas spot prices have more than doubled since early April this year, and going by the bullish stance of traders and analysts in the derivative markets, the rally seems to be far from over.
The domestic equity market too has been in a dream run, with the benchmark indices galloping to newer peaks every other day. Investors have been overjoyed with the speed at which stocks have delivered returns in recent months. Yet, none of the Nifty50 stocks have been able to match the surge in natural gas prices.
A few months back, it was the warm weather that led to an increase in demand. Unusually, cold winters in Europe as well as a global rebound from the Covid-19 have triggered strong demand and depleted natural gas inventories. Europe is struggling to refill natural gas inventories, with flows from Norway being limited.
Record exports of LNG, and post-pandemic normalcy has compounded the shortage in the market. This is when the US is yet to see winters.
“With US gas production constrained going forward and higher LNG exports on the horizon, the US gas market appears to be entering a multi-year bull market,” said Navneet Damani: Research Head for Commodities & Currencies, Motilal Oswal.
A severe winter in the US, let alone elsewhere, would mean the world would need many independent market players to make just right, urgent decisions to prevent an even crazier surge in gas prices, analysts said, adding that the market may have already begun to price it in.
On Monday, natural gas futures in the domestic market climbed further 4 per cent to hit the Rs 396 level. It was the fifth most traded counter on the MCX. Analysts believe it is a buy-on-dips opportunity, as technical indicators are extremely bullish.
“MCX Natural Gas prices are trading above all the key averages on the weekly and daily charts. The RSI indicator on the daily and weekly charts is also showing the strength in momentum on the upside. Also prices have taken support at the 20 MA level on the daily chart, which suggests strength in the primary trend. Any dip can be used as an opportunity to go long in the counter,” said NS Ramaswamy, Head of Commodities, Ventura Securities.
He suggests buying MCX Natural Gas (Oct) in the Rs 370-380 range for a target of Rs 410-430. He advised a stop loss below Rs 350.
Ceude oil has also risen past the July peak, as global output disruptions forced energy companies to pull large amounts of crude out of inventories. Brent added another 62 cents on Monday to $78.71 a barrel, while US crude rose 71 cents to $74.69. MCX Crude Oil was up over a per cent.
Following the rally in commodities, shares of oil explorer ONGC have gained over 2 per cent in Monday’s trade. GAIL added over a per cent. However, some gas stocks, especially city gas distributors, were in the red.
Kshitij Purohit, an analyst at CapitalVia Global Research, said following a smaller-than-expected growth in natural gas stock, prices have surged dramatically.
“During the next two weeks, the weather in most of the US is expected to be warmer than average. During a period when the weather is expected to get milder, warm weather should enhance cooling demand.”
He said MCX Natural Gas futures will likely continue the bullish momentum and traders should keep an eye on buy-on-dips opportunities around Rs 365, with a stop loss at Rs 349 for targets of Rs 383-387.
