Natural Gas lower while European gas prices soar on supply risk

Natural Gas prices are down 2% on Monday during trading in the US.
The US Dollar sells off and snaps several important support levels, which should support commodity prices.
Natural Gas prices could decline further once $3.10 is firmly in the rear view mirror.

Natural Gas (XNG/USD) is in a binary mode this Monday with an opposite difference between European and US gas prices. European futures are soaring substantially by 3%, while US futures are sinking by 2%. The reason for the dispersion appears to be headlines from a seized vessel in the Red Sea that could stir up war fears.

Meanwhile, the US Dollar (USD) is being clobbered again as the Greenback snaps a crucial technical support level. The 200-day Simple Moving Average (SMA), visible on a daily price chart at 103.62 of the US Dollar Index (DXY), is that support level. The big risk from a pure technical perspective is that if the DXY should close below this level this evening, and open below it again on Tuesday, a long term sell-off could get underway.

Natural Gas is trading at $3.06 per MMBtu at the time of writing.

Natural Gas market movers: Awaiting clarity

European industrial demand remains sluggish as European economies are slowing down and some even going in contraction, could provide some counterweight against the current uptick in European gas prices based on supply concerns.
European Natural Gas prices are soaring substantially, near 4% intraday, after Galaxy Leader, a vessel carrying Liquefied Natural Gas (LNG), got seized by Iran-backed Houthi rebels in the Red Sea, near the Strait of Hormuz.
More dark clouds for Europe in the meanwhile as cold weather is coming in quickly and is already having a grip on the more northern, Scandinavian capitals.
US futures meanwhile are declining and putting pressure on the floor near $3.08, as recent data revealed that the Biden administration very quietly had ramped up its energy production in both Oil and Natural Gas.
With the Thanksgiving holiday on Thursday, markets and trading dates will be a bit distorted this week.

Natural Gas Technical Analysis: US ramps up production

Natural Gas is testing the floor at $3.07 which acts as the last line of defence in a pure technical trading environment ahead of $3.00. Although the price action in US futures looks bearish, some support could be underway as the recent seizing of a tanker in the Strait of Hormuz could respark the pricing of a risk premium in the energy complex. A possible sease-fire between Israel and Palestine could counterbalance those tensions a bit.

Should a proxy war in the Middle East develop, $3.64, will be the level to watch for as prices soar. A risk premium will be priced in if Iran, Saudi Arabia and other countries in the region start mobilising forces. In such a case, even a quick sprint to $4.33, the high of 2023, could be expected.

The current pivotal level, the orange line near $3.07, is trying to provide ample support for now. That level should be able to act as the last line of defence before Gas prices retreat below $3.00. If it snaps, the 100-day SMA could try and salvage the situation for Gas prices. Further weakness could see the commodity sink to $2.72 near the 200-day SMA.

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.

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