Natural Gas price consolidates on Wednesday after the sharp decline witnessed in previous sessions. Hotter-than-expected weather is one factor preventing deeper declines, with forecasts of temperatures in Texas reaching 100 degrees Fahrenheit this week, expected to put pressure on Gas supplies used in air conditioning, according to a report by Natural Gas World.
XNG/USD is trading at $2.570 MMBtu, at the time of writing, as we enter the US session on Wednesday.
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.
In actual fact, the RSI started rising well before price did, which was indicative of an underlying change in environment. Until price goes a bit higher, however, the trend remains down.
Natural Gas would need to break above the last lower high of the long-term downtrend at $3.079 MMBtu 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 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 going 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 has reversed its prior short-term uptrend.
Natural Gas: Four-hour Chart
The steep decline witnessed on Tuesday broke below the last lower high at roughly $2.650 and could spell a change in direction for Natural Gas in the short term.
The RSI has exited overbought (above 70), which is a signal for bulls to close their long positions and bears to open short positions.
Price action on the four-hour chart may have formed a bear flag, with the recent cliff-edge decline from Tuesday’s highs as the ‘flag pole’ and the consolidation on Wednesday as the ‘flag square’.
Natural Gas: Four-hour Chart
If so, price will probably break lower and extend a similar, or Fibonacci 61.8%, of the length of the pole, to a target at roughly $2.430, around where the 200-4hr SMA is situated.
A decisive break below $2.558 would be required to activate the flag pattern and confirm more downside. Such a break would need to be composed of a long red bearish four-hour candlestick, which breaks below the level and closes near its lows, or three red candlesticks in a row that break below the level.
The target for the flag also lies at about the same level as the 100 and 50-day SMAs, further enhancing it as a possible floor for prices to pause and find support.
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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