Natural Gas pops with European gas storage in the balance
- Natural Gas sees more and more tailwinds come in that could drive prices higher.
- Europe faces issues with colder temperatures revealing supply issues for the winter.
- The US Dollar Index is under pressure and falls to a 14-month low against the Euro.
Natural Gas futures edge higher on Wednesday after a small pause in their rally the previous day. Heightened geopolitical tensions between Israel and Lebanon are still present, with supply concerns for Europe emerging as well on top. The underground Gas stockpile reserves in Europe are nearly 94% full, which is an excellent level, though more concerning is that the stockpiling is not picking up anymore and is even seeing some drawdowns locally, which triggers concerns for reserves over the winter.
Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, is under selling pressure after the announcement of a massive stimulus plan from China, which improved the market mood. Additionally, weak economic data from the United States (US) also weighs on the Greenback. This Wednesday will be a very calm day regarding macroeconomic releases, with some minor housing data standing out. Moreover, this week's main events will be the US Q2 Gross Domestic Product (GDP) on Thursday and the US Personal Consumption Expenditures Price Index (PCE) release on Friday.
Natural Gas is trading at $2.93 per MMBtu at the time of writing.
Natural Gas news and market movers: Colder temperatures reveal issues for Europe
- European weather is facing a cold front, which is already seeing Gas drawdowns from its reserves in Germany, for example, Bloomberg data reveals.
- Tropical Storm Helene is set to hit the shores of Florida in the US Mexican Gulf region by Thursday, the National Hurricane Center reports.
- Hotter-than-normal weather in Japan has seen extended Liquefied Natural Gas (LNG) consumption, increasing the need for more fuel before the seasonal peak in demand during the winter, Reuters reports.
- LNG tanker Pioneer is traveling through the Suez Canal toward the Red Sea, according to ship-tracking data from Bloomberg. The vessel was sanctioned by the US last month for being connected to Russia’s suspected LNG shadow fleet.
Natural Gas Technical Analysis: Squeeze to $3.0 could quickly unfold
Natural Gas prices are on course for another leg higher. This time, the demand side comes into play. With European storage figures reporting drawdowns being bigger than deliveries, concerns could emerge that the tactical reserves will be too low to surpass the winter season.
On the upside, $3.08 is the first pivotal level to look out for. To keep in mind, once above $3.20, a fresh high for 2024 will be registered. Ultimately, $3.50 would be the next big resistance.
On the downside, three clear levels can be identified as support. The first is a bounce off the red descending trend line, near $2.80. Further down, the green ascending trend line near $2.70 and the 100-day Simple Moving Average (SMA) at $2.50 should be able to avoid further downturn.
Natural Gas: Daily Chart
Natural Gas FAQs
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.
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.
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.
