Natural Gas rises as US Dollar weakens and heatwave increases demand

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• Natural Gas continues to recover from Tuesday’s lows amid weaker US Dollar and heatwave demand.
• Norwegian outages continue to ravage the supply outlook and underpin already low prices. 
• If temperatures across the Western world continue to remain elevated, Natural Gas could see further gains, according to analysts. 

Natural Gas price continues its recovery on Thursday, undoing much of the damage done by the sharp declines witnessed 48 hours ago. Gas prices have been held aloft by a mixture of a weaker US Dollar and hotter-than-expected summer weather in the Western world. Temperatures in Texas, for example, are breaking records and the trend is set to continue for 7-10 days, according to forecasters. If the summer is hotter overall, it will quickly put pressure on Natural Gas supplies used in air conditioning, according to a report by Natural Gas World.  

XNG/USD is trading at $2.650 MMBtu, at the time of writing, entering the US session on Thursday.  

Natural Gas news and market movers 

• If the unexpectedly warm weather witnessed in much of the west continues, it could increase demand for Natural Gas used to power air conditioning and push up prices, according to Natural Gas World (NGW). 
• “Weather is unpredictable and our forecasts are conservative as a result, so if temperatures are warmer than the three-year average, gas for power demand averages will be higher than expected,” NGW reports. 
• A decline in the US Dollar following US Federal Reserve (Fed) Chairman Jerome Powell’s testimony to the US Congress on Wednesday is giving Natural Gas a boost, as the commodity is mainly priced and traded in the world’s reserve currency. 
• Gas prices have rallied over recent weeks due to concerns regarding Norwegian supply after longer-than-expected outages reported at Gas plants in Norway. 
• Norwegian supply is now critical to the European continent after it replaced Russia as the main supplier in 2022, when Norwegian Gas accounted for 23% of imports compared to Russia’s 15%, according to a report by CNN. 
• “The European gas market — and by extension the global gas market — [is] certainly not out of the woods in terms of adequately matching supply with demand,” Tom Marzec-Manser, head of Gas analytics at ICIS, told CNN.
• Yet at the same time, European storage facilities remain relatively high. They are now 73% full — a much higher level than the 56% averaged at the same time of the year over the past five years, according to data from Gas Infrastructure Europe (reported by CNN).
• In addition, news of a deal between Romanian Gas operator RomGaz and Southeast European Gas producer Petrom OMV to build a new Natural Gas terminal in the Black Sea is likely to ease regional demand concerns, according to Offshore Energy. 
• The Neptun Deep offshore Gas field will make Romania the largest Gas producer in the EU and a net exporter.  
• Asian rivalry for Europe’s limited supply is likely to be less than in previous years, after Japan and South Korea recorded much higher stores, and the Chinese economy continues to falter after coming out of a prolonged lockdown. 
• US Natural Gas Storage data is scheduled for release at 14:30 GMT on Thursday. Economists’ forecast Gas stocks to rise to 88 billion cubic feet (bcf) from 84 bcf. 

Natural Gas Technical Analysis: Pulling back within a broader downtrend

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 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 temporarily reversed its prior short-term uptrend.  

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.  

Natural Gas: Four-hour Chart

The recent cliff-edge decline from Tuesday’s highs was not the flag pole of a bearish flag pattern as originally speculated. Price has recovered too much for it to be a bear flag. What is more likely is that the initial decline could be the ‘A’ leg of an ABC correction, with the rebound on Wednesday leg ‘B’ and a move down expected when wave ‘C’ finally unfolds. 

Wave C is likely to be at least a Fibonacci 61.8% length of wave A, suggesting a possible end target in the short-term of around $2.450.