Natural Gas speeds up decline in US session as markets are flooded with cheap gas

Natural Gas hits a floor near $2.09 and risks more downside.
Traders see short-term demand not picking up with the EU as the biggest laggard.
The US Dollar Index remains steady above 103 ahead of ECB, US GDP and US PCE data.

Filip Lagaart FXStreet

Natural Gas (XNG/USD) is flirting with a fresh low for the year, with Red Sea attacks circumvented by passing around Cape of Good Hope. Gas prices are hitting the floor again near $2.10 before another steep decline occurs. Despite being technically oversold, more of a downturn could be at hand with Gas exporters unable to ramp prices up while the demand-supply balance is still tilted into oversupply.

Meanwhile, the US Dollar (USD) is hanging by a thread ahead of some main catalytic events that certainly will move the needle for the US Dollar. Although the US Dollar Index (DXY) is holding above 103, selling pressure is building with lower highs and lower lows on a daily chart. WIth the European Central Bank rate decision, US Gross Domestic Product on Thursday and US Personal Consumption Expenditures on Friday, the DXY is set to enter serious volatility later this week.

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

Natural Gas market movers: US session sends Gas prices furhter south

Suez Canal passage dries up with ships making their way around Cape of Good Hope.
Sluggish economic demand and mild temperatures are putting Europe’s reserves in good condition to withstand further demand.
Chinese economic uncertainties are seeing Chinese demand not really hitting elevated levels.
Russian LNG exporters are trying to jack up prices. Bloomberg reports that Sakhalin Energy in the Far East is trying to renegotiate contracts with Asian partners at a higher price.
Near 15:00 GMT the Richmond Fed Manufacturing Index for January is due to be released. Previous number was at -11 with -7 expected. A further contraction could mean less demand for LNG for the US markets with economic activity slowing down.

Natural Gas Technical Analysis: Supply too big for current demand

Natural Gas has hit rock bottom and is signalling it is oversold on the Relative Strength Index on a daily chart. Though this does not yet mean traders will buy blindly into the commodity. With economic outlooks for especially Europe being very much depressed, it does not look to be the right time just yet to start buying, as demand does not look like it will pick up first.

On the upside, Natural Gas is facing quite some pivotal levels to get back to. First is the low of December 13th at $2.20 which already acts as a first line in the sand. 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 $1.51, the low of June 2021. Further pre-Ukraine levels would come in sight as well with $1 up for grabs in the longer-term

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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