Natural Gas rallies to new monthly highs amid heatwaves, supply fears, USD retrenchment

Natural Gas breaks to new highs for June amid hotter-than-average global temperatures, faltering confidence in supply, US Dollar correction.
Prices have been climbing higher as hotter weather stoked demand for Gas to power air conditioning.
Gas terminal closures and outages in Norway, Europe’s primary producer, further supported prices, as had a pullback in USD.

Natural Gas price has broken to new highs for the month of June on Friday, despite macroeconomic data from major economies – especially the US – coming out lower than expected, raising concerns about global growth. A global heatwave, which is seeing record-breaking temperatures in some parts and increased demand for Gas to power air conditioning, coupled with a series of incidents at Norwegian Gas plants are the key factors behind the rally. A late-stage pullback by the US Dollar, perhaps catalysed by the weak US PMI data could be a further cause of Natural Gas's sudden rally.

XNG/USD is trading at $2.838 MMBtu, at the time of writing, during the US session on Friday.

Natural Gas news and market movers

S&P Global PMI data for the US showed a lower-than-expected result for Composite PMI which came out at 53.0 when 54.4 had been forecast. Manufacturing PMI showed a contraction. to 46.3 when 48.6 had been forecast, though Services, at 54.1, marginally beat estimates of 54.0. The data weighed on the US Dollar which benefits Natural Gas which is mainly priced and traded in USD.
Natural Gas price had been rising over recent days due to an increase in demand for Natural Gas used to power air conditioning as many countries experience hotter-than-usual weather, according to Natural Gas World (NGW).
The fragility of Norwegian supply is further underpinning prices. Norway's Hammerfest LNG export terminal had to be closed on May 31 after a leak, and maintenance works at the Nyhamna processing plant were brought forward a month. The plant at Kollsnes has also suffered issues kinking supply, according to Oilprice.com.
“The European gas market — and by extension the global gas market — [is] certainly not out of the woods in terms of adequately matching supply with demand,” Tom Marzec-Manser, head of Gas analytics at ICIS, told CNN.
The data suggests the situation may not be entirely dire, however, as a milder-than-expected spring has allowed stocks to accumulate. European storage facilities remain relatively high, at roughly 73% full — a much higher level than the 56% averaged at the same time of the year over the past five years, according to data from Gas Infrastructure Europe (reported by CNN).
Japan and South Korea have recorded much higher Gas stores recently and this combined with concerns about Chinese growth suggest Asian demand may not be as elevated as expected.
Data showing traders’ positioning in the US Natural Gas futures market will be released by the Commodities Futures Trading Commission (CFTC) at 20:30 GMT on Friday and may provide an insight into future price moves. If Commercial positions have shifted to predominantly long or short, then that often signals a change in trend.

Natural Gas Technical Analysis: Recovery climb within a broader downtrend

Natural Gas price is in a long-term downtrend since turning lower at the $9.960 MMBtu peak achieved in August 2022. That said, bearish momentum has tapered off considerably since February 2023. This is evidenced by the bullish convergence of the Relative Strength Index (RSI) momentum indicator with price, beginning in May 2023. Bullish convergence occurs when price makes new lows but RSI fails to copy.

Natural Gas would need to break above the last lower high of the long-term downtrend at $3.079 MMBtu, however, to indicate a reversal in the broader trend.

As things stand, a break below the $2.110 MMBtu year-to-date lows would provide a signal for a continuation of the trend down to a target at $1.546 MMBtu. This target is the 61.8% Fibonacci extension of the height of the roughly sideways consolidation range that has been unfolding during 2023.

Natural Gas: Weekly Chart

On the daily chart, it can be seen that price is moving roughly sideways, although it has now broken above both the 50 and not the 100-day Simple Moving Average (SMA), which is a short-term bullish sign.

Natural Gas: Daily Chart

The four-hour chart shows the pair breaking above the June 20 (and May) highs at $2.779.

Natural Gas: Four-hour Chart

Bulls keep pressing and if the current four-hour bar closes near its highs the break could be decisive and lead to further upside towards the key make-or-break range cieling, at the $3.079 March highs, where the longer-term trend will be decided.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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