Natural Gas speeds up decline and dips over 2% with European car sector on its back

Natural Gas reverses gains and sinks over 2.0% ahead of the US trading session.
Markets focus on Europe where Germany sees its crown jewel Volkswagen launching plan to cut factories locally.
The US Dollar index holds steady just below key level ahead of ISM Manufacturing numbers.

Filip Lagaart FXStreet

Natural Gas is taking a turn for the worse heading into the early start of the US trading session on Tuesday. Natural Gas prices are sliding lower with markets focusing on recent headlines that Volkswagen is set to close factories domestically. Europe is seeing its manufacturing engine stutter, and might mean a serious spillover effect into several other countries in the Eurozone and might wipe out domestic growth and demand on the back of it.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, is holding on to its recovery taking place last week. Markets got wrong-footed after the Jackson Hole speech from US Federal Reserve Chairman Jerome Powell, going all in that a September rate cut might be bigger than 25 basis points. Recent US data shows that even a 25 basis points rate cut starts to get doubted, with the Nonfarm Payrolls report on Friday to be a key data point to confirm how big that September rate cut will be.

Natural Gas is trading at $2.27 per MMBtu at the time of writing.

Natural Gas news and market movers: Volkswagen headline ripples

As the day evolves, more negative news for Europe's car sector. Audi is being added to the list of car manufacturers that is closing its car plant in Belgium.
Russian LNG supplier Novatek is offering LNG to ports in Europe or Asia.
European Gas storage facilities are over 92% filled up. However, any disruption would still be enough to see gas prices jump higher, according to Bloomberg.
Bloomberg Economics still points to risks from Ukraine’s incursion into Russia as a tail risk for Gas prices that might jump in case Russia retaliates firmly.
The news out of Germany that Volkswagen will cut its production facilities might mean less demand to come from the German industry as manufacturing in Europe retreats further, Reuters reports.

Natural Gas Technical Analysis: European car sector means trouble ahead

Natural Gas prices are a bit torn as any upside looks limited for now. Europe has far succeeded in reaching its goal of securing enough Gas to make it through the next heating season. Meanwhile, Russia is facing pressure in its financial system with China pulling its liquidity support due to US sanctions and Ukraine’s excursion into Russia. Expect any upside in the Gas prices to remain subdued with no real substantial rallies to take place if current events remain as they are.

Should more bullish headlines emerge and push the Gas price higher, look ahead for moving averages as upside resistances. First, the 100-day Simple Moving Average (SMA) at $2.42 would already be a significant move higher. Further up, the green ascending trend line at $2.56 could be tested.

On the downside, very close support from the 200-day SMA at $2.29 should avoid that Gas prices fall lower. In case that level snaps, $2.13 comes back into play for a test and possible dip below. Although still far away, a return to $2.00 or lower could mean a test at the low of August, with $1.93 in the cards.

Natural Gas: 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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