Natural Gas (XNG/USD) has breached the floor of 2023 at $2.10 and is now entering an area not seen since August 2020. The decline comes with efforts from the US and its president Joe Biden to take measures towards promoting a greener economy. A moratorium on LNG export installation in the US is one such measure, while more and stricter efficiency standards for household Gas stoves is another. Overall this means less demand from the US for Natural Gas.
The US Dollar (USD), which is negatively correlated to Gas prices, was trying to sprint away on Monday with a mix of safe-haven inflows after three US military people were killed over the weekend during a drone strike on a US base in Jordan. The US Defense administration was quick to issue comments that it is not looking for retaliation or expanding military action in the region. This defused the brewing risk-off sentiment and pushed the US Dollar Index (DXY) back to its near opening price from Monday in Asia.
Natural Gas is trading at $2.07 per MMBtu at the time of writing.
Natural Gas is going back in time and is currently trading near levels not seen since August 2020. Should Natural Gas start trading further below $2, it will be just a matter of time before those actual pre-Covid levels will come into play between $1.53 and $1.96. The current US moratorium is no game changer with supply still very much flowing.
On the upside, Natural Gas is facing some pivotal levels to get back to. First is the low of January at $2.09 which broke on Monday. Next is the intermediary level near $2.48. Once that area gets hit, expect to see a test near $2.57 at the purple line.
A break below the yellow line at $2.10 means big issues for Natural Gas, with a fresh multi-year low. First level to look for on the downside is near $1.96 (orange level) which goes back to August 2020. Next red line to keep an eye on is near $1.51, the low of June 2021.
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.