Natural Gas stages turnaround on Woodward forecast

Natural Gas snaps below $2.10 on US measures to promote greener consumption.
Traders are seeing a potential big chunk of demand never returning to markets with US Gas stove measures.
The US Dollar Index is staying put ahead of the Fed meeting Wednesday.

Filip Lagaart FXStreet

Natural Gas (XNG/USD) has breached the floor of 2023 at $2.10 and is now entering an area not seen since August 2020. Though the decline could be short-lived after Woodward Inc. held a conference call and mentioned a remarkable element in there on China. Demand for natural gas trucks is booming in China, with demand having increased significantly aginst last year, CEO Charles Blankenship said during a conference call.

The US Dollar (USD), which is negatively correlated to Gas prices, was trying to sprint away on Monday with a mix of safe-haven inflows after three US military people were killed over the weekend during a drone strike on a US base in Jordan. The US Defense administration was quick to issue comments that it is not looking for retaliation or expanding military action in the region. This defused the brewing risk-off sentiment and pushed the US Dollar Index (DXY) back to its near opening price from Monday in Asia.

Natural Gas is trading at $2.09 per MMBtu at the time of writing.

Natural Gas market movers: Demand in China picks up

Woodward Inc's CEO Charles Blankenship said during a conference call that China demand for heavy-duty natural gas trucks has substantially jumped compared to last year.
Asian LNG buyers are looking for alternatives now that the US has placed a moratorium on new LNG mining projects on US soil.
Retail sellers of US Gas stoves are facing tougher and more strict rules on components and usage to meet greener regulations from the US energy administration.
Mild weather in the EU and UK sees Gas demand dropping to a lower-than-average level for this week. Though, weather models towards next week project a firm dip in temperatures with chances for winter conditions.
Despite recent turmoil in the Red Sea and Yemen region, Gas supply in the Middle East is still flowing at normal volumes with no supply hiccups at hand at the moment, making the supply side still very much solid and sound.

Natural Gas Technical Analysis: Is this a buy-the-dip moment?

Natural Gas is going back in time and is currently trading near levels not seen since August 2020. Should Natural Gas start trading further below $2, it will be just a matter of time before those actual pre-Covid levels will come into play between $1.53 and $1.96. The current US moratorium is no game changer with supply still very much flowing.

On the upside, Natural Gas is facing some pivotal levels to get back to. First is the low of January at $2.09 which broke on Monday. Next is the intermediary level near $2.48. Once that area gets hit, expect to see a test near $2.57 at the purple line.

A break below the yellow line at $2.10 means big issues for Natural Gas, with a fresh multi-year low. First level to look for on the downside is near $1.96 (orange level) which goes back to August 2020. Next red line to keep an eye on is near $1.51, the low of June 2021.

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.

Author

Filip Lagaart

FXStreet

Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.

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