Natural Gas price continues its step recovery into the weekend. The commodity is supported by a combination of a hotter-than-usual start to the summer in most of the US and Europe stoking demand for Gas to power air conditioning and lingering concerns about Norwegian supply, which has taken Russia’s place as the main producer in the region.
XNG/USD is trading at $2.724 MMBtu, at the time of writing, entering the US session on Friday.
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 steadily climbing back up towards the May 20 highs at $2.779.
Natural Gas: Four-hour Chart
Bulls keep pressing and making up ground after the recent cliff-edge decline from Tuesday’s highs.
It is possible the structure since June 20 is an ABC correction. If so the initial decline could be the ‘A’ leg of an ABC pattern, with the rebound on Wednesday leg ‘B’ and an expected eventual move down as wave ‘C’ finally unfolds.
If wave C does unfold, it will probably be at least a Fibonacci 61.8% length of wave A, suggesting a possible end target in the $2.500s.
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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