Natural Gas halts its rally with US GDP unchanged in third reading

Natural Gas jumps further away from $2.30 after severe profit taking on Wednesday.
Traders are cleaning up balance sheets ahead of New Year's close.
The US Dollar remains steady ahead of US GDP and PCE inflation data.

Filip Lagaart FXStreet

Natural Gas (XNG/USD) prices are recovering from the profit taking that occurred on Wednesday by short-term traders that profited from the Gas price rally fueled by geopolitical tension in the Red Sea. The upward squeeze following rising tensions in the Red Sea occured when Houthi rebels attacked another vessel followed by freight operators to divert their fleets away from the region, prompting investors to opt for profit taking. The firm build up in US oil stockpiles also added to the downward move.

Meanwhile, the US Dollar (USD) is continuing its consolidation. A breakout is taking place with the US Dollar trading softer on the back of unchanged US Gross Domestic Product numbers this Thursday. Markets seem to forget that this is the third reading already, and no changes are quite normal at this stage, while Friday the Personal Consumption Expenditures (PCE) Price Index numbers could still move the needle.

Natural Gas is trading at $2.37 per MMBtu at the time of writing.

Natural Gas Market Movers: News flow slowing down

In more energy related news: Angola is to leave OPEC+. The news comes as no surprise seeing the recent spat during the most recent OPEC+ meeting where several African countries vetoed any broad production cut requests from Saudi Arabia.
Tensions remain present around the Red Sea as ships pass the region. The number of vessels has slumped to the lowest level this year, with all big freight operators steering their fleet around Africa in a two-week-longer journey.
Price pressure in Natural Gas prices should remain subdued as European gas storages remain fully equipped to withstand a severe winter.
Around 15:30 GMT, the weekly Natural Gas Storage numbers will be released by the Energy Information Administration. The previous number was a drawdown of 55 billion cubic metres. The Forecast pencils in an 80 billion cubic metres reduction.
Recent weather models show a very mild period ahead for the UK, Germany and France. This means less consumption of Gas in the bloc during the Christmas period.

Natural Gas Technical Analysis: Expect this to be it

Natural Gas fell sharply on Wednesday as speculators cashed in on profits when prices soared on the back of Red Sea tensions. Although tensions are still there, positions have been reduced ahead of the Christmas holidays in a global balance sheet cleanup. Although some more upside could be in the cards, do not expect any quick return to $3 with European gas storage facilities still well-equipped and mild temperatures across Europe.

On the upside, Natural Gas could still try to return to the purple line near $2.60 as the first hurdle. Next, the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance, which if breached will allow Gas prices to soar to $3.00 and the 100-day SMA nearby.

With the dust settling on the Red Sea tensions and another mild front nearing Europe for Christmas, Gas prices can retreat further towards $2.20, and the low of June. Firmer support should come in near $2.10, April’s low, at the yellow supportive line.

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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