Natural Gas to close off week at the lowest level in a month

Natural Gas prices sink over 10% for the week.
The US Dollar briefly surges on the back of hawkish Powell comments.
Natural Gas prices could sink lower as temperatures in Europe remain on the high end of the range.

Filip Lagaart FXStreet

Natural Gas is set to close this week at its lowest level in over a month, after prices are falling more than 10% since the opening on Monday as concerns over supply following the Middle-East war are fading quickly. Markets have been following the narrative that the longer the tensions linger in the Middle East, the less probable it becomes that a proxy war would get underway.

Meanwhile, the US Dollar (USD) is flat on Friday after its overnight stronger performance on the back of comments from US Federal Reserve Chairman Jerome Powell. Powell went against earlier comments from a few Fed members that the central bank has reached the end of its hiking cycle. Although the US Dollar Index (DXY) trades in the green, this week's gains are far from enough to erase losses from the prior one.

Natural Gas is trading at $3.22 per MMBtu at the time of writing.

Natural Gas market movers: Flat for Friday

Uganda Energy Minister Ruth Nankabirwa said the country signed a bilateral agreement with Tanzania for the construction of a natural gas import pipeline.
The Pentagon has issued a statement on its military personnel in Syria and Iraq that came under attack four times since an overnight US airstrike on an arms depot.
Turkey’s President Recep Tayyip Erdogan has urged Israel to free detained Palestinians in order to secure the release of civilian hostages held by Hamas.
Around 18:00 GMT, the weekly Baker Hughes Gas Rig count will come out. Previous was at 118, posting a small uptick from the week before.

Natural Gas Technical Analysis: Awaiting further storage buildup

Natural Gas price has given back a substantial part of its uprising since the start of the Israeli-Palestinian war a few weeks ago. The risk premium has been all but erased by now. While Europe is facing elevated temperatures and with gas storages still fully filled up for the winter, more downturn should be priced into Natural Gas prices.

Only one big catalyst could break the price ceiling near $3.64, and that is a proxy war in the Middle East. A risk premium would be priced in if Iran, Saudi Arabia and other countries in the region started mobilising forces. In such a case, a quick sprint to $4.33, the high of 2023, would be expected.

On the downside, the 55-day Simple Moving Average (SMA) is doing its work near $3.15 as the downturn appears to be losing traction near $3.20. In case it is unable to hold the recent sell-off, expect to sell the orange line, from the double top in August, to try and salvage the situation near $3.06. That will be the last line of defence before gas prices retreat below $3.

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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