Natural Gas price trades flat on Monday, taking a breather after the recent strong rally. Overall volume is light as some traders book profits and those in the US stay away from their desks for the Juneteenth national holiday.
Last week’s surge was one of the biggest of 2023, with Natural gas prices rising over 17%. The main catalyst was supply fears as several European Gas plants suffered longer-than-expected outages, leading to concerns of a repeat of last year’s supply crisis from Russia’s invasion of Ukraine – and unexpectedly hot weather increasing air-conditioning demand.
XNG/USD is trading a whisker down on the day, exchanging hands at $2.685 MMBtu, at the time of writing.
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 this year. Bullish convergence occurs when price makes new lows but RSI fails to copy. It can be indicative of a bullish reversal in the offing.
Given the longer-term trend is bearish, Natural Gas would need to break above the last lower high of the long-term downtrend at $3.079 MMBtu to reverse the trend.
As things are a break below the $2.110 MMBtu year-to-date lows would provide a signal for a continuation 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 unfolded during 2023.
Natural Gas: Weekly Chart
Scoping into the daily chart, however, it can be seen that price is rising up within its consolidation range. 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 4-hour chart shows the pair in a short-term uptrend making successively higher highs and higher lows.
Natural Gas: 4-hour Chart
This falls in line with the bullish RSI convergence observed on the weekly chart.
Yet on the 4-hour chart, the RSI is now blinking ‘overbought’ (above 70), which is a signal for bulls not to add any new long positions. It has come down from its peak and in the event that RSI exits the overbought zone and returns to neutral territory, it would be a signal for short-term horizon bulls to close their long positions altogether, and is likely to be indicative of a pullback in price after the recent strong gains.
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.
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