- Natural Gas prices are under pressure this week, correcting from last week’s big recovery.
- The Dollar is trading mixed, divided between safe haven monetary flows due to the war between Israel and Hamas and the increase in US Treasury yields.
- Natural Gas prices continue in a long-term upward trend, the favorable winter season will still bring more increases.
Natural Gas prices fall this week as gas supply to Europe has been above average, despite the closure of the flow of gas imported from Israel via Egypt. With European gas tanks filled to the brim, the EU bloc appears prepared to face the first period of cold temperatures ahead of winter. Even with geopolitical tensions on the horizon, one of the largest reserves of demand in the world seems to have a hold for a while.
Meanwhile, the US dollar (USD) has traded divided into two camps. On the one hand, safe haven capital inflows are supporting the Dollar. On the other, US Treasury yields have soared to decade highs, with the US 10-year bond breaking above 5% at one point. The general rule in financial markets is that a yield above 5% is a tipping point at which high bond yields begin to hurt the economy and could cause damage in the near future, arguing for a weaker dollar.
Natural Gas is trading at $3.26 per MMBtu at the time of writing these lines.
Natural Gas news and market drivers
- The European Union is studying the legality of a new Bulgarian tax on Russian Natural Gas passing through its territory.
- The latest data from the Egyptian port authorities indicates that Liquefied Natural Gas vessels leave ports with only partial loads of Liquefied Natural Gas on board due to the closure of Israeli gas fields.
- With nighttime bombings in the Middle East and the downing of drones by a US military aircraft carrier, the United States could be dragged into the war, which could trigger a rally in Gas prices in the short term.
- The thinktank “The Institute of Energy Economics, Japan” (IEEJ) estimated that the world will need 7 trillion dollars to guarantee sufficient gas supply until 2050.
- The Baker Hughes gas drilling rig count will be released this afternoon around 17:00 GMT. The previous figure was 117, which is still quite far from the peak of 167 reached in 2022. There are no expected expectations.
Technical Analysis of Natural Gas: Risk premium during the weekend
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 moderate 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.
There are no significant resistance levels except $3.65, the January 17 high. From there, the 2023 high near $4.3080 comes into play.
On the downside, the trend channel did not act as support near $3.37. Natural Gas prices could briefly sink to $3.07, with that orange line identified from the mid-August double top. If the decline turned into a sell-off, prices could fall below $3, near the 55-day simple moving average.
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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
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
