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Natural Gas rallies to new highs for month of June amid heatwaves, supply fears, USD retrenchment

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  • Natural Gas breaks to new highs for June amid hotter-than-average global temperatures, faltering confidence in supply, US Dollar correction.
  • Prices have been climbing higher as hotter weather stoked demand for Gas to power air conditioning.
  • Gas terminal closures and outages in Norway, Europe’s primary producer, further supported prices, as had a pullback in USD. 

Natural Gas price has broken to new highs for the month of June on Friday despite macroeconomic data from major economies – especially the US – coming out lower than expected, raising concerns about global growth. A global heatwave which is seeing record-breaking temperatures in some parts and increased demand for Gas to power air conditioning coupled with a series of incidents at Norwegian Gas plants are the key factors behind the rally. A late-stage pullback by the US Dollar, perhaps catalysed by the weak US PMI data could be a further cause of Natural Gas’s sudden rally. 

XNG/USD is trading at $2.798 MMBtu, at the time of writing, during the US session on Friday.  

Natural Gas news and market movers 

  • S&P Global PMI data for the US showed a lower-than-expected result for Composite PMI which came out at 53.0 when 54.4 had been forecast. Manufacturing PMI showed a contraction. to 46.3 when 48.6 had been forecast, though Services, at 54.1, marginally beat estimates of 54.0. The data weighed on the US Dollar which benefits Natural Gas which is mainly priced and traded in USD. 
  • Natural Gas price had been rising over recent days due to an increase in demand for Natural Gas used to power air conditioning as many countries experience hotter-than-usual weather, according to Natural Gas World (NGW). 
  • The fragility of Norwegian supply is further underpinning prices. Norway’s Hammerfest LNG export terminal had to be closed on May 31 after a leak, and maintenance works at the Nyhamna processing plant were brought forward a month. The plant at Kollsnes has also suffered issues kinking supply, according to Oilprice.com.
  • “The European gas market — and by extension the global gas market — [is] certainly not out of the woods in terms of adequately matching supply with demand,” Tom Marzec-Manser, head of Gas analytics at ICIS, told CNN.
  • The data suggests the situation may not be entirely dire, however, as a milder-than-expected spring has allowed stocks to accumulate. European storage facilities remain relatively high, at roughly 73% full — a much higher level than the 56% averaged at the same time of the year over the past five years, according to data from Gas Infrastructure Europe (reported by CNN).
  • Japan and South Korea have recorded much higher Gas stores recently and this combined with concerns about Chinese growth suggest Asian demand may not be as elevated as expected. 
  • Data showing traders’ positioning in the US Natural Gas futures market will be released by the Commodities Futures Trading Commission (CFTC) at 20:30 GMT on Friday and may provide an insight into future price moves. If Commercial positions have shifted to predominantly long or short, then that often signals a change in trend.

Natural Gas Technical Analysis: Recovery climb within a broader downtrend

Natural Gas price is in a long-term downtrend since turning lower at the $9.960 MMBtu peak achieved in August 2022. That said, bearish momentum has tapered off considerably since February 2023. This is evidenced by the bullish convergence of the Relative Strength Index (RSI) momentum indicator with price, beginning in May 2023. Bullish convergence occurs when price makes new lows but RSI fails to copy. 

Natural Gas would need to break above the last lower high of the long-term downtrend at $3.079 MMBtu, however, to indicate a reversal in the broader trend. 

As things stand, a break below the $2.110 MMBtu year-to-date lows would provide a signal for a continuation of the trend down to a target at $1.546 MMBtu. This target is the 61.8% Fibonacci extension of the height of the roughly sideways consolidation range that has been unfolding during 2023. 


Natural Gas: Weekly Chart

On the daily chart, it can be seen that price is moving roughly sideways, although it has now broken above both the 50 and not the 100-day Simple Moving Average (SMA), which is a short-term bullish sign. 


Natural Gas: Daily Chart

The four-hour chart shows the pair breaking above the June 20 (and May) highs at $2.779.  

Natural Gas: Four-hour Chart

Bulls keep pressing and if the current four-hour bar closes near its highs the break could be decisive and lead to further upside towards the key make-or-break range cieling, at the $3.079 March highs, where the longer-term trend will be decided.   

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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