Natural Gas price rises as heatwave continues though participation falls off

• Natural Gas makes higher highs as record temperatures mean more demand for use in powering air conditioning.
• Natural Gas futures data shows bullish interest waning, however, indicating the rally may be running out of steam. 
• As price nears the key $3.000 MMBtu watershed, the entrenched long-term downtrend loses significance. 

Natural Gas price trades a touch higher on Monday after pulling back from its highs. The commodity continues to be supported by hotter-than-usual weather in most of the US and Europe, which increases demand for Natural Gas used to power air conditioning. Gas prices may lack the energy to go much higher, however, as data from the futures market suggest falling market participation in the rally. 

XNG/USD is trading in the $2.800s MMBtu at the start of the US session on Monday.  

Natural Gas news and market movers 

• Natural Gas price rises in the short-term due to increased demand for air conditioning as much of the US and Europe experience hotter-than-usual temperatures for this time of year. 
• Gains may be limited, however, according to FXStreet Senior Analyst and Editor Pablo Piovano, who says the rise is accompanied by falling participation in the Gas futures market. 
• “Natural Gas prices extended the recovery and advanced to multi-week highs past $2.70 on Friday. The strong uptick was accompanied by declining open interest, which pours some cold water over the likelihood of further gains in the very near term.” Said Piovano in a report analyzing CME data on Monday morning. 
• Norwegian supply concerns, after outages at the Hammerfest LNG export terminal and the processing plants at Nyhamna and Kollsnes, had been supporting prices. However, the effect has been offset by projected weaker demand from faltering global growth, according to an analysis by ANZ bank cited on MarketWatch.
• Last week’s Purchasing Manager Index data was on the whole poor for most of Europe and the US, potentially indicating a weaker economic growth trajectory. 
• Supply constraints also need to be read within the context of robust existing stocks, according to data from Gas Infrastructure Europe, cited by CNN, last week. A milder-than-expected spring has allowed stocks to accumulate, and European storage facilities remain relatively high, at roughly 73% full – a much higher level than the 56% average at the same time of the year over the past five years.  
• Japan and South Korea have recorded much higher Gas stores recently.  This, combined with concerns about Chinese growth, suggest Asian demand may not be as high as expected. 

Natural Gas Technical Analysis: Recovery nears significant trend-determination level within downtrend

Natural Gas price has recovered to close to a key trend-determination level on longer-term charts. Although the commodity remains in a long-term downtrend since turning lower at the August 2022 peak, bearish momentum has tapered off considerably.

The Relative Strength Index (RSI) momentum indicator is converging bullishly with price on the weekly chart, something that occurs when price makes new lows but RSI fails to copy. 

A break above the last lower high of the long-term downtrend at $3.079 MMBtu would indicate a reversal in the broader trend. 

Natural Gas: Weekly Chart

Given this level has not been breached yet, however, the downtrend remains intact and a break below the $2.110 year-to-date lows would provide a confirmation of a continuation down to a target at $1.546. This target is the 61.8% Fibonacci extension of the height of the roughly sideways consolidation range that has been unfolding during 2023. 

On the daily chart, price has been climbing within a roughly sideways market, although it has broken above both the 50 and not the 100-day Simple Moving Averages (SMA), which is a significant bullish sign. 

Natural Gas: Daily Chart

Nevertheless, a break above the last lower high of the long-term downtrend at $3.079 MMBtu would be required to indicate a reversal in the broader trend. 

Such a move might then see prices rally higher to the next key resistance level at the 200-week SMA, situated at $3.813.