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Natural Gas retreats off the high as ceasefire talks reportedly progress rapidly

  • Natural Gas prices retreat from $3.70 as tension builds around possible invasion in Gaza region.
  • The US Dollar reclaims its status as King Dollar as US yields flirt with 5% again. 
  • Natural Gas prices could jump rapidly once reports are issued that Israel has started its ground offensive. 

Natural Gas is retreating a touch as reports hit the wires that a ceasefire deal is in progress, after pushing higher earlier as Israel confirms it has made a second entry across the Gaza border. Overnight US Pentagon officials confirmed that US soldiers have been attacked 12 times in Iraq and 4 times in Syria in the past week by Iran-affiliated groups. With tensions reaching a new high, gas prices are trading alongside that elevation. 

Meanwhile, the US Dollar (USD) is set to lock in a new week of gains after a small negative dip last week. Although the topside looks to remain locked for further upside in the US Dollar Index (DXY), expect to see the Greenback trade at elevated levels ahead of the Federal Reserve decision next week. The Personal Consumption Expenditures – Price Index results out on Friday, will shed a bit more light on how inflation is still declining or soaring again in the US. 

Natural Gas is trading at $3.69 per MMBtu at the time of writing.  

Natural Gas news and market movers

  • At the US opening bell reports and headlines are coming out that a ceasefire deal is in the making in the Middle East. 
  • European and US gas prices soar substantially as an Israeli invasion in the Gaza region over the weekend could materialize.
  • European natural gas prices soared near €50 a megawatt-hour as traders are on the lookout for further news on tensions in the Middle East. The risk premium to be factored in for a proxy war in the region means a substantially elevated gas price.
  • Despite the recent drops in temperatures, EU gas storages remain near 99% full.
  • EDP has plans to convert Abono II in Spain from a coal to a gas-fired power plant. The conversion should be done by mid 2025.
  • Russian gas  still accounts for about 10% of France’s natural gas supply, French Energy Transition Minister Agnes Pannier-Runacher said.
  • This evening at 17:00 GMT the weekly Baker Hughes Gas Rig Count is due to come out. Previously it was at 118 and is still at the lower levels of 2023.

Natural Gas Technical Analysis: Ceasefire just a soft patch

Natural Gas price has met its first big price target at $3.65 after a steep ascent in the past few days. Day by day more headlines come out that are pointing to a major Israeli ground assault going ahead into Gaza at any moment. Once that news hits the wires, expect to see another firm jump higher that could even print a new high for 2023 near $4.33

From a purely technical perspective, gas prices broke back above the topside trend line identified earlier, near $3.37, on Wednesday. Expect to see a continuation higher from here with the next level on the upside at $3.63. Should a big ground invasion take place and several countries start to choose sides, expect a very quick squeeze higher to $4.33, the high of 2023.

On the downside, the trend channel should try to act as support again, near $3.37. Natural Gas prices could fall to $3.07, with that orange line identified from the double top around mid-August. Should the drop become a broader sell-off, prices could sink to $3.03, at the 55-day Simple Moving Average.

XNG/USD (Daily Chart)

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

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

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