Natural Gas pops higher despite bearish signals from the demand side
|- Natural Gas price is up above $3 and is up over 2%.
- The US Dollar squeezes all asset classes to lower levels.
- US Natural Gas prices could sink if demand keeps deteriorating.
Natural Gas prices are playing a short squeeze on traders despite demand failing as a mild fall kicks off the last two seasons in Europe. In several parts of Europe, temperatures are still above 20 degrees Celsius, not demanding households to open up the heating. With this delay and the European gas provisions for the winter still near full levels, demand is set to deteriorate further for the first upcoming gas contracts expiring in November.
Meanwhile, the US Dollar (USD) is squashing all asset classes with its roaring performance for yet another week. Commodities, except for Crude oil, bonds and equities are all dropping like flies and are flirting with yearly lows or more. It appears that the Greenback strength will not go away anytime soon as US Federal Reserve Chairman Jerome Powell repeated on Monday that the Fed will keep rates higher until inflation is down to its target.
Natural Gas is trading at $3.06 per MMBtu at the time of writing.
Natural Gas news and market movers
- European storage sites keep adding reserves, with inventories in the bloc up to 96% full, according to data from Gas Infrastructure Europe.
- November gas contracts have declined 5.4%, to the lowest level since January 2022, as demand is fading fast. Over the past three sessions, contracts declined by 10%.
- Recent numbers show that in the EU and UK demand in September was already 9% lower than a year ago.
- The European gas regulator has reported an uptick in market participants trading contracts, with even Brazilian banks taking part in the gas market. The huge volatility since the Russian invasion of Ukraine has attracted several hedge funds and commercial banks looking for volatility to make profit.
- Egypt is set to resume its LNG exports in October, according to Tarek Ahmed El Molla, the Egyptian Minister of Petroleum and Mineral Resources.
- Markets are reacting nervously to comments coming out of the Adipec Summit, ahead of the COP 28 in November.
- Indian petroleum minister Marpadi Veerappa Moily commented during the Adipec Summit that oil above $100 is not in anyone's interest.
Natural Gas Technical Analysis: short squeeze
Natural Gas has been unable to move higher on the triangle breakout. Instead, a false break and drop back into the triangle got triggered. With demand fading quickly, it looks that the green ascending trend line is the important line in the sand, near $2.95, to time a decline to $2.60.
As mentioned, the pivotal level near $3.07 has been broken to the upside. This level needs to hold now as a new floor, squeezing prices higher. With respect of the ascending trend channel, the upside looks limited toward $3.30-$3.40 to test the upper barrier.
On the downside, the newly formed floor at $3.07 should act as support together with the psychological effect of $3 as a big figure. In case demand abates further, or more supply out of Norway comes back online, expect to see an initial drop back to the green ascending trendline near $2.95. Should that give way, $2.80 is an area with two moving averages (the 55-day and the 100-day) and the lower barrier of the trend channel that could encourage bulls to catch any falling price action.
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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