Natural Gas Jumps 7.8% After Producer Cuts Production & Shorts Are Forced To Cover

The price of Natural Gas jumped 7.8% in New York yesterday as Chesapeake Energy Corp. announced that it would cut production in order to put a floor under the commodity.

Thanks to an exceptionally mild winter and increased production from shale gas, the price of natural gas as listed on the New York Mercantile Exchange has fallen 55% since 9 June 2011.

A 9 Month Chart of Natural Gas

Chart courtesy of Stockcharts.com

As the chart above shows, natural gas broke out of a falling wedge pattern back in January, quickly falling from $2.85 to an intraday low yesterday at $2.23 per million British Thermal Units (BTUs).

Yesterday’s announcement by Chesapeake that it will immediately curtail 0.5 billion cubic feet a day of gas production (around 8% of its total output) sent gas sharply higher on high volume as short sellers moved to cover their positions.

Following such a big upside move a short-term pullback is likely, however if and when the advance continues, the lower blue line, formally support, is likely to act as resistance.

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