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Natural Gas faces profit taking after breakdown in Australian talks ramped up prices

  • Natural Gas rallied to $2.79 in European trading hours and reverses as US markets trigger profit taking
  • The US Dollar moves sideways as traders await the Jackson Hole Symposium on Friday.
  • The overall technical picture sees Natural Gas being supported by an important technical indicator.

Natural Gas price jumps higher above Friday's high as talks failed to reach an agreement in Australia, though is reversing course with the US session triggering profit taking on intraday gains. Wage negotiations are going nowhere between port authorities and workers in one of the most important LNG terminals in Australia. More workers in ports and terminals across Australia are joining the demand for higher wages, pointing to a possible shutdown of more than 10% of the world supply by the first week of September if there is no agreement. 

The US Dollar (USD), in the meantime, is not expected to show any fireworks before Friday. The Greenback is even taking a small step back on Monday as markets brush off the gloom from China’s sluggish economic recovery. So any moves to the upside will be fundamentally affected by the demand for Natural Gas futures contracts in the wake of a possible supply shortage out of Australia. 

At the time of writing, Natural Gas is trading at $2.738 per MMBtu.  

Natural Gas news and market movers

  • TotalEnergies acquires 26% of AC-RL7 permit in Australia. 
  • Overnight numbers showed that China July LNG imports rose by 24.3%. 
  • China is expanding its LNG importers by starting up or expanding more trading desks in London, Singapore and Qatar. 
  • China's onshore Yuan trades at its weakest point since November 2022. The economic recovery in China is failing, which could mean that broad demand on the internationl gas markets could be limited. 
  • France gas storage levels have risen to 86%, with overall Europe at 91%, ahead of target.
  • European gas futures soared 18% on the back of the Australian workers ultimatum. 
  • China’s LNG import growth is set to slow down for the winter, according to Bloomberg gas analyst Daniela Li. China has secured 37 long-term deals in the past two years, which could lead to oversupply by 2024.
  • Tropical storm Hilary has hit mainland California. For now there hasn’t been any reports of infrastructure or pipeline breaks in the overall gas network. Still, potential flooding could still cause damage to infrastructures. 
  • All eyes are focused on Friday, when the annual Jackson Hole Symposium will be the focal point for the week. In the event,  the US Federal Reserve tends to signal a change in its monetary policy going forward. 

 

Natural Gas Technical Analysis: profit taking underway

Natural Gas is soaring on the back of the headlines out of Australia, where talks are still ongoing though shutdowns at the start of September look inevitable. The 10% cut in supply as of then is not to be underestimated and already shows how fragile price stability is. US natural gas futures are already up 2.8% intraday, while European gas futures increase more than 12%.

On the upside, $3 is still the level to watch as the overall ascending trend channel since April is being respected. Should Natural Gas prices recover, look for a close above $2.935, the high of August 15, in order to confirm that demand is picking up again. More upside toward $3 and $3.065 (high of August 9) would be targets or levels to watch. 

On the downside, the trend channel is doing its work with a 55-day Simple Moving Average (SMA) at $2.656, which is underpinning the price. In case more downside pressure builds, look for $2.58, which aligns with the lower trendline of the channel.


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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