Natural Gas price sinks despite event risk in the Middle East over the weekend
|- Natural Gas prices pressured this week, correcting from last week’s huge rally.
- The US Dollar trades mixed, torn between Israel-Hamas war safe-haven flows and rising US Treasury yields.
- Natural Gas prices are still in a long-term uptrend, favourable winter season will still bring more upside.
Natural Gas prices are dropping lower this week as gas supply towards Europe has been above average, despite the closure of the import Israel gas flow via Egypt. With the European gas tanks filled up to the brim, the EU bloc looks ready to face the first period of cold temperatures ahead of winter. Even with geopolitical tensions on the horizon, one of the biggest demand pools in the world looks to be set for quite a while.
Meanwhile, the US Dollar (USD) trading action has been split in two halves. On one side safe haven inflows are supporting the Greenback. On the other one, US Treasury yields have soared to new decade highs with the US 10-year note breaking above 5% at one point. Rule of thumb in financial markets is that a yield above 5% is a tipping point where the high returns to bonds and notes start to hurt the economy and might cause damage in the near future, which advocates for a weaker US Dollar.
Natural Gas is trading at $3.26 per MMBtu at the time of writing.
Natural Gas news and market movers
- The European Union is looking at the legality of a new Bulgarian levy on Russian natural gas passing its territory.
- Latest port authority data from Egypt shows that LNG ships are leaving the harbours with only partial loads of LNG on board due to the closure of the Israeli gas fields.
- With overnight bombing in the Middle East and drons being shot down by a US military carrier, the US could be pulled into the war, which might trigger a spike in gas prices in the short run.
- Thinktank ‘The Institute of Energy Economics, Japan’ (IEEJ) calculated that the world will need $7 trillion to ensure there is sufficient gas supply through 2050.
- This evening the Baker Hughes Gas Rig Count is due to be published near 17:00 GMT. Previous number was 117, which is still quite far off the 167 high in 2022. No expectations pencilled in.
Natural Gas Technical Analysis: Risk premium over the weekend
Natural Gas is still up over 25% after the start of the turmoil in the Gaza region. And with the winter season ahead, volatility is expected to pick up. Prices are expected to broadly ease until temperatures start to drop and risk premiums will be factored in due to tensions in the Middle-East during the winter period, when demand is expected to surge.
Expect with geopolitical headlines severe upswings could always materialise. There aren’t any significant resistance levels except for $3.65, the peak of January 17. From there, the high of 2023 near $4.3080 comes into play.
On the downside, the trend channel failed to act as support near $3.37. Natural Gas prices briefly could sink to $3.07, with that orange line identified from the double top around mid-August. Should the drop become a broader sell-off, prices could sink below $3, near the 55-day Simple Moving Average.
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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