- Natural gas edged higher on Friday, albeit at a slower pace, as the US dollar found a bottom on the back of hawkish Fedspeak.
- The latest driver is news that the Groningen Gas plant in the Netherlands is likely to close in October 2023, a year earlier than previously thought.
- A weaker US dollar after Thursday’s hawkish ECB hike adds more fuel to the XNG/USD rally.
Natural gas prices soar more than 14% this week, helped by lower-than-expected inventories datawarmer weather conditions (gas is used for both cooling and heating), reports of significant outages in Europe, significantly weaker American dollarand expectations of stronger demand from Asia.
XNG/USD is trading higher on Friday, extending a strong start and exchanging hands at $2.707 MMBtu at the time of writing.
Natural Gas News and Market Drivers
- Natural gas is getting a boost from rumors reported by Bloomberg that the Groningen Gas plant in the Netherlands could be shut down a year earlier than expected – this October rather than next – due to mounting complaints over political pressure from earthquakes caused by the plant damaging local residents’ homes. .
- Weekly data from the U.S. Energy Information Administration (EIA) showed an unexpected drop in natural gas storage change data to 84 billion cubic feet in the previous week, from a forecast of 95 billion, suggesting that demand is outweighing supply.
- Norway’s Nyhamna Gas processing plant is experiencing technical problems that will shut down production for a month, according to a Reuters report. This is much longer than expected and shakes confidence in Norwegian supplies.
- Tracking gas futures commitment of traders (COT) data from last week showed that many traders were short natural gas futures. Many of these traders were caught in a “short squeeze” this week, leading to panic coverage, adding even more fuel to the rally.
- XNG/USD saw further gains on the back of a significant weakening of the US dollar after the European Central Bank (ECB) made a hawkish rate hike on its Meeting on Thursday, the strengthening of the euro and the weighting of the US dollar index (DXY).
- This was because the ECB revised its forecasts for core inflation in 2023-4.
- ECB President Christine Lagarde made it clear at her post-meeting press conference that the ECB will keep the door open to further rate hikes in the future.
- That said, a hawkish comment from the Federal Reserve’s Christopher Waller on Friday is helping support the US dollar, as is a higher-than-expected result for the University of Michigan consumer sentiment gauge.
- The price of natural gas is further supported by expectations of higher Asian demand and the interruption of Russian oil pipelines.
- A warmer-than-expected summer is increasing demand for natural gas used for cooling and driving up prices.
Natural Gas Technical Analysis: Renewal in Longer Downtrend
The price of natural gas remains in a long-term downtrend since falling from its high of 9.960 MMBtu reached in August 2022. The bearish momentum has diminished considerably since February 2023, as evidenced by the bullish convergence of the Relative Strength Index (RSI), a momentum indicator with the price, starting in May. A bullish convergence occurs when the price makes new lows but the RSI fails to copy. It may indicate a bullish reversal.
However, if natural gas fails to break the last lower high of the long-term downtrend at 3.079 MMBtu, the odds still favor an extension of the bearish trend and shorts over longs.
A break below the year-to-date lows of $2.110 MMBtu would strengthen the bears view and propose a continuation down to the target of 1.546 MMBtu, or 61.8% Fibonacci extending the height of the roughly sideways consolidation range that developed during 2023.
Looking at the daily chart, it can be seen that the price has now broken above both the 50 and 100 day simple moving average (SMA), which is a short-term bullish sign.
Looking at the 4-hour chart, the pair has been in a short-term uptrend since the beginning of June 2023, making successive higher highs and higher lows.
This is consistent with the bullish RSI convergence seen on the weekly chart.
Still, the 4-hour RSI is now flashing “overbought” (above 70), a signal for bulls not to add any new long positions. In case the RSI leaves the overbought zone and returns to neutral territory, it would be a signal for short-term bulls to completely close out their long positions and is likely to indicate a decline in price after recent strong gains.