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Natural Gas erases Monday gains with Red Sea risk quickly defused - FXStreet

FXStreet · last updated December 19, 2023 – 2:31 AM

Natural Gas drops lower as markets deviate away from Red Sea

- Natural Gas drops back below $2.50 in a reversal trade.
- Companies and governments defuse Red Sea tensions overnight with several interventions.
- The US Dollar steady after Greenback appreciates over 1.2% against the Japanese Yen.

Natural Gas (XNG/USD) is completely reversing on Tuesday, giving up earlier gains from Monday. The full paring back of those gains comes as both shipping companies and several main governments have taken measures to detour or defuse tensions in the Red Sea after Houthi rebels again attacked a ship in the region, on Monday. Shipping companies such as Maerks, BP and MSCI have cancelled all travelling in the region and are deviating their fleet via other, longer, routes, while a UK-Canadian-France-US task force will patrol the area to secure safe passage.

Meanwhile, the US Dollar (USD) is finding a floor which halts its decline in the US Dollar Index (DXY). In early morning trading this Tuesday, the Bank of Japan held a monetary policy meeting. Bank of Japan (BoJ) governor Kazuo Ueda delayed the timing again on the normalisation of the Bank’s monetary policy, which made the Japanese Yen devalue by over 1% against the US Dollar.

Natural Gas is trading at $2.36 per MMBtu at the time of writing.

Natural Gas Market Movers: quiet into Christmas

- The US Secretary of Defense Lloyd Austin, has set up a task force with the UK, Canada and France to create a naval task force to secure safe passage in the region.
- All big shipping transporters meanwhile have taken measures to avoid the Suez Canal and Red Sea passage.
- European industrial demand remains subdued for the coming months, with no chunky declines in overall Gas storages in the EU.
- Norwegian based company Equinor has signed a deal with Germany to supply SEFE with 10 billion cubic metres of Natural Gas from January 1st 2024 until 2034. The amount accounts for roughly one third of German industrial demand.
- Side remark in this situation is that the Baltic Dry Index, which tracks prices for shipping goods, could jump higher on the back these longer routes ships now have to take. Meanwhile, the promissed task force will be put in place at earliets mid-January as several involved countries in that same task force, will need to sign off on the project and pass it through their parliaments and congresses. This means the door is open for a small inflation push in prices, which might trickly trhough to the end consumer, the customer.

Natural Gas Technical Analysis: Brief pop in inflation could

Natural Gas jumping above $2.50 saw red flags popping up all over European government desks, even stretching all the way up into Washington to the White House. It did not take long for the US Secretary of Defense Lloyd Austin to set up a task force that will monitor and patrol the Red Sea in order to fence off any other Houthi rebel attacks. Meanwhile shipping companies are rerouting their fleet, avoiding any supply issues and quickly defusing the sudden uptick in Gas prices.

On the upside, Natural Gas could still try and return to the purple line near $2.60 as the first hurdle, should another front of bad geopolitical news occur. Next, the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance, which if breached will allow Gas prices to soar to $3.00 and the 100-day SMA nearby.

With the dust quickly settling on this blip of macroeconomic tensions in the Red Sea, Gas prices are back retreating towards $2.20, and the low of June. Firmer support should come in near $2.10, April’s low, at the yellow supportive line.

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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Natural Gas erases Monday gains with Red Sea risk quickly defused - FXStreet

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