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Natural Gas off the lows as US CPI points to uptick in energy prices - FXStreet

FXStreet · last updated October 12, 2023 – 11:08 PM

Natural Gas off the lows as US CPI points to uptick in energy prices

- Natural Gas prices trade lower near $3.50.
- The US Dollar rallies as US monthly overall CPI jumps higher
- US Natural Gas prices could reach $4, though the probability gets smaller by the day.

Natural Gas prices are recovering a touch as the Greenback rallies with a higher monthly overall inflation print against expectations. The earlier correction comes after heading higher on the back of supply worries stemming from tensions surrounding the Israel-Hamas conflict. The closure of the Tamar gas field should not be an issue with European gas storage now at 97% capacity. This should mean that demand will remain low and might even go lower, counter-balancing the risk of supply issues due to the Tamar gas field closure and possible labor strikes in Australia.

Meanwhile, the US Dollar (USD) is at a crucial point in terms of positions as its summer rally quite abruptly came to a halt and took a turn for the worse. The US Dollar was unable to advance substantially on Monday when risk-off sentiment was the main theme in the aftermath of the Israel-Hamas conflict. Since then the Greenback has been retreating, and the slew of Fed speakers this week that believe the Fed is done hiking are pouring only more oil on the fire.

Natural Gas is trading at $3.53 per MMBtu at the time of writing.

Natural Gas news and market movers

- Overall gas demand out of Europe is set to remain subdued as European gas storage is filled nearly to the brim, at 97% capacity,, the highest level on record at this period of time.
- Norwegian gas supply to the UK and Europe soared and was performing 11% above its normal 5-day moving average.
- Gazprom is gearing up to make several offers to China when President Xi Jinping will head to Russia to meet with President Vladimir Putin next week. Gazprom is in dire need of a replacing market as the end of European gas demand has left a big hole in its export and profit numbers.
- Near 14:30 GMT, the weekly Natural Gas Storage Changes for the first week of October will be released. Expectations are for another build as reserves are set to head from 86 billion cubic feet to 88 billion cubic feet of natural gas.

Natural Gas Technical Analysis: Europe biggest absentee on the demand side

Natural Gas needs some cooling after its price action shot through the roof with fears of a proxy war in the highly sensitive oil region of the Middle East. As several comments came out from national leaders, a broader war does not seem to be at hand at this point, and risk premiums were due to be priced out quite quickly. With gas supply storage in Europe filled to the brim, global demand will not rise substantially, and thus gas prices might see some easing from here while the Relative Strength Index (RSI) can slide back to more normal levels from being overbought at the moment.

With the firm peak and breakthrough out of the trend channel, it will be crucial that the upper band of that same trend channel acts as support. There aren’t any significant resistance levels except for $3.65, the peak of January 17. From there, the high of 2023 near $4.3080 comes into play.

On the downside, the trend channel needs to act as support near $3.30. In case this breaks down again, Natural Gas prices could sink to $.3.07, with that orange line identified from the double top around mid-August. Should the drop become a broader sell-off, prices could sink below $3 toward $2.85, near the 55-day Simple Moving Average.

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 off the lows as US CPI points to uptick in energy prices - FXStreet

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