Natural Gas rallies to $2.50 with Red Sea shipping lanes closed
|- Natural Gas further recovers and breaks above important resistance at $2.46
- Tensions are building after Houthi rebels attacked another carrier in the Red Sea on Monday.
- The US Dollar depreciated last week and is facing more downturn ahead of Christmas.
Natural Gas (XNG/USD) is jumping higher for a fourth straight day in a row. Main driver this Monday is news from the Red Sea where a Norwegian vessel got hit by missiles fired by Houthi Rebels claiming the vessel carried cargo with destination Israel. Main shipping companies like Maersk and MSC have instructed their fleet to clear the area and take longer routes for delivering their cargoes, which will add to transportation costs for the end user.
Meanwhile, the US Dollar (USD) has retreated substantially, though with the dust settling, the current weakness may well not be permanent. When comparing last week’s data from both the US and Europe against their respective central bank monetary policy stances, the Federal Reserve (Fed) looks to be the one holding all the best cards for a soft landing. In Europe the European Central Bank (ECB) looks reluctant to make any cuts in 2024 while several economic indicators are retreating further into contraction and might soon reveal a backslash in its economic performance and growth.
Natural Gas is trading at $2.50 per MMBtu at the time of writing.
Natural Gas Market Movers: List grows by the minute
- As the day continuous, more shipping companies are redirecting their fleet to other routes, avoiding the Red Sea area. BP joins the group avoiding the region.
- The United Kingdom will introduce a carbon border tax in 2027 which will be added onto the price of cheap carbon-intensive imports, such as steel, making them equally expensive as onshore-produced products.
- Houthi rebels attacked another vessel in the Red Sea, forcing main shipping companies to cancel routes in the region and take a deviating, longer route, which will add to transportation costs being passed on to the client.
- Gas Power is seeing its position in the European power usage slimming down, replaced by renewable sources, a Bloomberg report revealed this Monday.
- Israel is pushing back against several international calls for a cease-fire.
Natural Gas Technical Analysis: Supply risk issues more possible
Natural Gas looks to have found a factor that might run up its prices. The recent number of events in the Red Sea is forcing shipping companies to take longer, and more expensive routes to get their cargoes delivered without any risk. This premium is starting to find its way into the Gas prices, which might see a jump back to $3.00 if this risk continues to persist.
On the upside, Natural Gas could return to the purple line near $2.60 as the first hurdle. Next, the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance before allowing Gas prices to soar to $3.00 with the 100-day SMA nearby.
The dust could quickly settle on this blip of macroeconomic tensions in the Red Sea. European Gas reserves are still well stocked, so there is no rush to get LNG shipments in, which makes those longer routes unlikely to trigger any supply bottlenecks near term. Small support could be seen near $2.20, with the low of June. Firmer support should come in near $2.10, April’s low, at the yellow supportive line.
XNG/USD (Daily Chart)
Natural Gas FAQs
What fundamental factors drive the price of Natural Gas?
Supply and demand dynamics are a key factor influencing Natural Gas prices, and are themselves influenced by global economic growth, industrial activity, population growth, production levels, and inventories. The weather impacts Natural Gas prices because more Gas is used during cold winters and hot summers for heating and cooling. Competition from other energy sources impacts prices as consumers may switch to cheaper sources. Geopolitical events are factors as exemplified by the war in Ukraine. Government policies relating to extraction, transportation, and environmental issues also impact prices.
What are the main macroeconomic releases that impact on Natural Gas Prices?
The main economic release influencing Natural Gas prices is the weekly inventory bulletin from the Energy Information Administration (EIA), a US government agency that produces US gas market data. The EIA Gas bulletin usually comes out on Thursday at 14:30 GMT, a day after the EIA publishes its weekly Oil bulletin. Economic data from large consumers of Natural Gas can impact supply and demand, the largest of which include China, Germany and Japan. Natural Gas is primarily priced and traded in US Dollars, thus economic releases impacting the US Dollar are also factors.
How does the US Dollar influence Natural Gas prices?
The US Dollar is the world’s reserve currency and most commodities, including Natural Gas are priced and traded on international markets in US Dollars. As such, the value of the US Dollar is a factor in the price of Natural Gas, because if the Dollar strengthens it means less Dollars are required to buy the same volume of Gas (the price falls), and vice versa if USD strengthens.
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