Natural Gas prices are grinding higher again in a choppy week with several positive and negative headlines guiding gas prices. The biggest headline on Thursday is Pakistan hitting gas markets in search of LNG as its domestic gas production dwindles. If this trend persists, Pakistan’s demand could triple in five years.
The US Dollar (USD) gained strength as the US Federal Reserve (Fed) delivered what was expected: a hawkish pause. The devil was in the details in the Dot Plot, in which the Fed is anticipated to hold rates above 5% for the most part of 2024. In the previous forecast, the Dot Plot showed rates between 4.5% and 5%. This surprise jacked up the 2-year US Treasury yield, which peaked at a 16-year high at 5.1973%. The news fuelled a rally in the Greenback.
Natural Gas is trading at $2.955 per MMBtu at the time of writing.
Natural Gas appears to be in a bullish triangle with on the top side a triple top at $3.06 on the daily chart. Meanwhile, higher lows are being formed with the green ascending trend line showing support since the beginning of September. Expect to see a breakout above $3.06, which means natural gas prices are set to jump higher.
Awaiting the breakout of the triangle, $3 remains a key level that needs to be broken. Seeing the current equilibrium, a catalyst is needed to move the needle upwards. Gas prices could rally to $3.25 in the bullish triangle breakout, testing the upper band of the ascending trend channel.
On the downside, the ascending trend line at $2.90 should support any attempts to break lower. The 200-day Simple Moving Average (SMA) at $2.80 could act as circuit breaker in case there is a nosedive move. Should that give way on a downside move, some area will be crossed before the next support kicks in at $2.75. This level aligns with the 55-day SMA, which is likely to step in to avoid any nosedive moves in the commodity.
XNG/USD (Daily Chart)
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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