NEW YORK ( TheStreet) -- Natural gas is expected to trade sideways to higher during the third quarter. Prices may reach $5.206 and touch $6.082, if they sustain above $4.309 per MMBtu. However, any break below $3.810 may drive prices lower. The resistant levels are pegged at $5.206, $6.082 and $6.697, while support is seen at $4.309, $3.788 and $3.246.Demand for natural gas is expected to remain high from electricity utilities during the summer. More than 20% of electricity demand in the U.S. is met through burning natural gas. Industrial applications will likely play a prominent role in reviving the demand for natural gas, going forward. The Atlantic hurricane season could disrupt production in the Gulf of Mexico. The National Oceanic and Atmospheric Administration, NOAA, has forecast an "active to extremely active" hurricane season, assigning a 70% probability for hurricanes this season. Supply may be further reduced on the U.S. government's policy to ban deep-water drilling, post the oil spill crisis involving BP ( BP) in the Gulf of Mexico. Factors disrupting supply in the Gulf of Mexico will support higher prices during the quarter. However, excess production and cooler weather may limit the upside for prices. Technical analysis indicates a mildly bullish sentiment for natural gas during the quarter. Natural gas prices on the NYMEX witnessed a trend reversal in the second quarter, rallying from $3.810 to $5.196 levels to settle at the $4.737 levels, gaining 19%. Prices bounced back as a leading indicator stochastic (5, 3) was treading in the oversold zone. If the market sustains above the trend line support of $4.031, a positive momentum is foreseen during the third quarter. As per the Fibonacci principle, the market is witnessing resistance at $5.206 levels (23.6% retracement of 6.082-2.370). If prices breach this level and sustain there, they could head for the next level at $6.082. The momentum indicator, RSI (14) monthly, has ascended from 0.34 to 0.46, suggesting a mildly bullish sentiment for the quarter.
Highlights During the Second QuarterBeginning in the second quarter, inventories swelled as winter ended early in the Northern hemisphere. The buildup in inventory levels was higher than the five-year average. As nuclear and coal-fired plants were under maintenance, the demand for natural gas subdued.
Prices declined to as low as $3.92 per MMBtu during the first half of the quarter, whereas a recovery was seen in the second half of the quarter. Positive economic data from the U.S. prevented a further drop in gas prices.Toward the end of the second quarter, prices soared on the forecast of hot weather while net speculative short positions fell. Into the third quarter, the optimism of an economic recovery will sustain prices at higher levels. During the second quarter, oil and gas producers Occidental Petroleum ( OXY), Apache ( APA), Devon Energy ( DVN), and EOG Resources ( EOG) declined 8.7%, 17.1%, 5.4% and 5.8%, respectively. Meanwhile, integrated oil and gas majors Exxon Mobil ( XOM), Chevron ( CVX), ConocoPhillips ( COP), and Total ( TOT) declined 14.8%, 10.5%, 4.1% and 23.1%, respectively, during the quarter.