The price of Natural Gas decreases due to high supply and efforts to reduce tensions in the Middle East

  • Natural Gas prices fall in search of support.
  • The US Dollar is trading mixed, struggling to find direction.
  • Natural Gas prices in the US reflect efforts to calm geopolitical tensions in the Middle East.

Natural Gas prices are moving downward, extending the massive sell-off that has been occurring since last week. The mix that is pushing down Natural Gas prices in both Europe and the US is based on the simple rule of economics 101: greater supply and normal or lower demand means a devaluation of the price of the good. And that is what is happening right now: supply is high, above normal, while demand is already lower than usual for this time of year.

Meanwhile, the US Dollar (USD) is under pressure as there is no clear sense of direction for the Dollar. US President Joe Biden’s visit to Israel has not gone as desired by the White House. Meanwhile, the U.S. rate differential is soaring for all the wrong reasons: China and Japan sold billions of U.S. holdings in September.

Natural Gas is trading at $3.43 per MMBtu at the time of writing these lines.

News about Natural Gas and market drivers

  • Gas prices in Europe are expected to fall as more Western leaders turn to Israel in an attempt to broker a cessation of hostilities to resolve the conflict in the region.
  • European Gas inventories remain almost full, with weather forecasts still very benign for the European region.
  • During Russian President Vladimir Putin’s visit to China, Chinese President Xi Jinping reiterated that China wants to strengthen ties with Russia in grain and energy. Xi also said that China wants to build a gas pipeline between the two countries and Mongolia, called Siberia 2, as soon as possible.
  • The International Gas Union has published a report together with Rystad Energy that points to a supply shortfall in the coming decades if investments in new supply research remain below forecast. At the current rate, less than 1 trillion cubic meters of gas will be available in 2050 compared to 4.1 trillion cubic meters today.
  • Around 2:30 p.m., the Energy Information Administration (EIA) will publish the weekly variations in Gas storage. A reduction of 84 to 80 trillion cubic feet of gas is expected.

Technical Analysis of Natural Gas: Bullish pressure remains

Natural Gas continues to rise by more than 25% after the start of the turbulence in the Gaza region. And with the arrival of winter, volatility is expected to pick up. Prices are generally lower until temperatures begin to drop and risk premiums will be taken into account due to tensions in the Middle East during the winter period, when an increase in demand is expected.

With the firm peak and breakout of the trend channel, it will be crucial for the upper band of that same trend channel to act as support. There are no significant resistance levels except $3.65, the January 17 high. From there, the 2023 high near $4.3080 comes into play.

To the downside, the trend channel should act as support near $3.37. If this level is broken again, Natural Gas prices could sink to $3.07, with that orange line identified from the double top of mid-August. If the decline turned into a sell-off, prices could sink below $3 towards $2.98, near the 55-day simple moving average.

XNG/USD (Daily Chart)

XNG/USD daily chart

Frequently asked questions about Natural Gas

What fundamental factors determine the price of Natural Gas?

The dynamics of supply and demand is a key factor that influences Natural Gas prices, and is in turn 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 the 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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