Natural Gas sinks with no chance of a White Christmas in Europe

• Natural Gas drops 6% in European trading with EU storages still above 80%.
• Natural Gas prices are heading to $2 at this pace.
• The US Dollar is steady ahead of US CPI and the last Fed’s policy meeting for 2023.

Natural Gas (XNG/USD) is sinking as traders abandon ship this Monday in European trading. A buildup of different elements is pushing Natural Gas prices into a correction. China is set to struggle with deflation as demand is hitting rock bottom, while Europe could be facing the same issue after the too quick decline in inflation numbers recently and ahead of the European Central Bank meeting this Thursday. With European Gas storages filled up above 80% and weather forecasts pointing to mild temperatures in the coming two weeks, there is very little to almost no chance the EU will run out of Gas for this winter season. 

Meanwhile, the US Dollar (USD) is strengthening this Monday with one of its counterparts, the Japanese Yen, weakening again. Its central bank, the Bank of Japan, issued a statement which contradicts earlier comments which drove the Japanese Yen higher against the US Dollar and triggered substantial down moves in the US Dollar Index. That same US Dollar Index (DXY), is back to where it was earlier last week, ahead of the last US Federal Reserve meeting for 2023, taking place on Wednesday. 

Natural Gas is trading at $2.34 per MMBtu at the time of writing.  

Natural Gas market movers: Oversupply during winter

• More Asian Gas traders are demanding trading licences in London to set up shop. China is facing deflation, which means less demand for Liquified Natural Gas (LNG). Asian traders are now trying to offload surplus volumes in Europe where dependency on imports is still very high. 
• The Futures markets are pricing in more downturn for gas demand in Europe, with January futures being priced below April prices at the moment. 
• Weather forecast models are seeing no negative temperatures for the coming two weeks in Europe. 
• Recent congestion issues at the Panama Canal are continuing, with Gas tankers blocked in the region not posing any supply risk as those volumes have already been replaced or allocated with other third-party supplies. 

Natural Gas Technical Analysis: Snow is off 

Natural Gas is sinking and it is difficult to find any bottom that might help its downturn at the moment. The decline is a sum of factors which all point to one and the same issue: demand is absent. European tanks are still very much full and equipped to pass this winter without any hiccups. Meanwhile Chinese demand is turning into oversupply and traders are now seeking other regions to offload the surplus. 

Should the weather models be wrong and several days of severe frost take a grip of mainland Europe, expect the reserves to erode quite quickly and additional supply might be needed. Expect to see a return to the purple line near $2.60 as the first hurdle. Next the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance before allowing Gas prices to soar to $3 with the 100-day SMA nearby. 

Traders are facing further discounts in nearterm expirations in Futures contracts, which means more downside to come as buyers will wait for further declines before starting to buy. Small support could be seen near $2.20, with the low of June. Though, rather expect to see firm support coming in near $2.10, at the low of April from this year, at the yellow supportive line. 

XNG/USD (Daily Chart)