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Natural Gas: The upward trend continues with China monopolizing the Gas markets

  • Natural Gas prices exceed $2.60, reaching a four-month high.
  • China's largest LNG buyers have placed orders to further expand their LNG tanker fleet.
  • The US Dollar Index falls after the US CPI shows the economy is back on track on its disinflationary path.

The price of Natural Gas (XNG/USD) is advancing strongly on Thursday, hitting the highest level in four months and surpassing another important technical level amid more news that China is cornering the Gas markets. China National Offshore Petroleum Corporation has placed an order for 12 ships worth 16 billion ($2.2 billion) for Liquefied Natural Gas (LNG) tankers. This comes on top of news that several trading centers such as London have confirmed that more Chinese participants are buying contracts in the local European and US Gas markets.

The US Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, is trading substantially lower after recent Consumer Price Index (CPI) data revealed that inflation in the US .has resumed its decline. Although markets were quick to reprice two rate cuts by 2024, all US Federal Reserve officials and even Fed Chair Jerome Powell are very focused on rejecting those bets saying that rates they could remain at current levels longer. Trading conditions for the Dollar have changed and could now see further easing (or selling) with each economic data point that fails to meet market expectations.

Natural Gas is trading at $2.61 per MMBtu at the time of writing.

News and drivers of the Natural Gas market: Divergence between the EU and US markets.

  • While US Gas prices are skyrocketing, European Gas markets are trading steadily in a tight range with sluggish demand in play as Europe still maintains robust reserves entering its replenishment season.
  • For almost four months, no LNG tankers have passed through the Red Sea since attacks by Houthi rebels began, Bloomberg reports.
  • Since the pandemic, China is back at the top of the leader board in LNG imports, reaching around 71.3 million tonnes last year.
  • Continued disruptions in the Red Sea are forcing LNG vessels to divert around Africa to transport fuel between Atlantic and Pacific ports. As a result, Asian buyers only have a limited pool of suppliers available to purchase LNG from unless they are willing to pay higher shipping costs.

Natural Gas Technical Analysis: Are we really going to $3.00?

Natural Gas is rising sharply, even surpassing the very important 200-day SMA around $2.53. This takes the XNG/USD spot price into entirely new territory, where $3.07 appears to be the first major upside profit target at hand. This would put another 18% gain on the table, if the US Dollar continues to weaken and China continues to drive demand.

The $3.00 marker as an important figure is the first level to watch on the upside. Once broken, the pivot level near $3.07 (March 6, 2023 high) will come into play and mark a new high for 2024. Higher up, there is room for a quick crossover towards $3.69.

On the downside, before the double belt with the 100-day SMA at $2.09 and the pivot level at $2.11 (Apr 14, 2023 low), the 200-day SMA should now act as support near $2.53. If both support areas fail to hold, then the ascending green trend line near $1.98, along with the 55-day SMA at $2.00, should prevent a deeper decline.

Daily Natural Gas Chart

Daily Natural Gas Chart

Source: Fx Street

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