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Natural Gas looks both ways due to the divergence between EU and US futures.

  • Natural Gas prices drop 2% on Monday during US trading.
  • The dollar gives way and breaks several important support levels, which should support commodity prices.
  • Natural Gas prices could decline further once $3.10 is firmly in the rearview mirror.

He Natural Gas (XNG/USD) is in binary mode this Monday with an opposite difference between gas prices in Europe and the US. European Futures are rising substantially 3%, while US futures are sinking 2%. The reason for the dispersal appears to be headlines of a ship captured in the Red Sea that could stoke fears of war.

Meanwhile, the US Dollar (USD) takes another hit as the greenback breaks a crucial technical support level. The 200-day simple moving average (SMA), visible on a daily price chart at 103.62 of the Dollar Index (DXY), is that support level. The big risk from a purely technical perspective is that if the DXY closes below this level this afternoon, and opens below it again on Tuesday, a long-term sell-off could begin.

Natural Gas is trading at $3.06 per MMBtu at the time of writing these lines.

Movements in the Natural Gas market: Festive atmosphere

  • Natural Gas prices in Europe are soaring considerably, about 4% intraday, after the Galaxy Leader ship, carrying Liquefied Natural Gas (LNG), was seized by Iran-backed Houthi rebels in the Red Sea, near the Strait of Hormuz.
  • Meanwhile, more dark clouds for Europe, as the cold is moving in quickly and is already taking hold in the northernmost Scandinavian capitals.
  • US Futures, meanwhile, are declining and putting pressure on the ground near $3.08, as recent data revealed that the Biden administration had very quietly increased its energy production, both in oil and natural gas.
  • With the Thanksgiving holiday on Thursday, markets and trading will be a bit distorted this week.

Technical Analysis of Natural Gas: Excess supply in the US

Natural Gas is testing the $3.07 floor, which acts as the last line of defense in a purely technical trading environment before $3.00. Although price action in US Futures appears bearish, some support could be in place as the recent seizure of an oil tanker in the Strait of Hormuz could revive the pricing of a risk premium in the energy complex. A possible maritime fire between Israel and Palestine could somewhat offset those tensions.

If a proxy war were to break out in the Middle East, prices would skyrocket to a level of $3.64. If Iran, Saudi Arabia and other countries in the region begin to mobilize their forces, a risk premium will be charged. In that case, one would even expect a quick sprint towards $4.33, the 2023 high.

The current pivot level, the orange line near $3.07, attempts to provide ample support for now. That level should act as the last line of defense before Gas prices retreat below $3.00. If broken, the 100-day SMA could try to save the situation for Gas prices. Further weakness could see the commodity sink to $2.72, near the 200-day SMA.

XNG/USD (Daily Chart)

XNG/USD (Daily Chart)

Frequently asked questions about Natural Gas

What fundamental factors determine the price of Natural Gas?

Supply and demand dynamics are a key factor influencing Natural Gas prices, and in turn are influenced by global economic growth, industrial activity, population growth, production levels and inventories. Climate influences Natural Gas prices because more Gas is used during cold winters and hot summers for heating and cooling. Competition from other energy sources influences prices as consumers may opt for cheaper sources. Geopolitical events, such as the war in Ukraine, also play a role. Government policies related to extraction, transportation and environmental issues also influence prices.

What are the main macroeconomic publications that influence natural gas prices?

The main economic publication that influences natural gas prices is the weekly inventory bulletin of the Energy Information Administration (EIA), a US government agency that produces data on the gas market in the United States. The EIA Gas bulletin usually comes out on Thursday at 14:30 GMT, the day after the EIA publishes its weekly oil bulletin. The economic data of large consumers of natural gas can influence supply and demand, among which China, Germany and Japan stand out. Natural Gas is primarily priced and traded in US Dollars, so economic releases affecting the US Dollar are also factors.

How does the Dollar influence natural gas prices?

The US dollar is the world’s reserve currency and most commodities, including Natural Gas, are quoted and traded in international markets in US dollars. Therefore, the value of the Dollar influences the price of Natural Gas, since if the Dollar strengthens, fewer dollars are needed to buy the same volume of gas (the price falls), and vice versa if the Dollar strengthens.

Source: Fx Street

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