Natural Gas extends gains after 17% rally in previous week

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• Natural Gas continues its rally after one of the most positive weeks in 2023, in which it witnessed a 17% rally.
• Gas price rises as concerns linger regarding European supply adequately meeting demand after outages in Norway, the continent’s main Gas producer. 
• Despite bullish fundamentals, the longer-term technical trend remains down as long as prices stay below $3.079 MMBtu. 

Natural Gas price trades over 2% higher on Monday, building on last week’s strong rally. Despite US traders staying away from their desks for the Juneteenth national holiday, the bullish short-term uptrend extends. 

Last week’s surge was one of the biggest of 2023, with Natural gas prices rising over 17%. The main catalyst was supply fears as several European Gas plants suffered longer-than-expected outages, leading to concerns of a repeat of last year’s supply crisis from Russia’s invasion of Ukraine – and unexpectedly hot weather increasing air-conditioning demand. 

XNG/USD is trading slightly higher on the day, exchanging hands at $2.718 MMBtu, at the time of writing.  

Natural Gas news and market movers 

• Natural Gas price cotninues higher with the main catalyst the news of longer-than-expected outages at Norwegian Gas plants, plus rumors of an earlier-than-expected closure of the Groningen Gas field in the Netherlands. 
• 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 extended shutdown of plants in Norway could shave one billion  cubic meters (bcm) of Gas off supply, and, “It only really takes 5 bcm less… to make the market a lot tighter,” a source told 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.
• That said the position is not as precarious as in previous years: European storage facilities 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).
• Asian rivalry for Europe’s limited supply is also 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 months of lockdown. 
• Demand for air conditioning has risen due to hotter-than-expected weather in the Western hemisphere as the summer season begins. 
• The ongoing Atlantic hurricane season in the US could further increase demand in the US. 
• Supply showed an unexpected fall in last week’s Energy Information Administration (EIA) data, after dropping to 84 billion cubic feet (Bcf) versus the 95 Bcf forecast and the 104 Bcf of the prior period, further exacerbating supply-demand imbalances.   
• The US Dollar could be a factor for XNG/USD, as market expectations of the trajectory of future interest rate changes in the US clash with comments from US Federal Reserve (Fed) officials. 
• Fed speakers, Jerome Powell included, are taking a more hawkish line than market-based gauges suggest, with Powell recently mentioning the chance of two more hikes in 2023 when the market only expects one. 
• Interest rate hikes are bullish for the US Dollar (bearish for XNG/USD) as higher interest rates attract more inflows from global investors seeking to park their money in the US for maximum return. 

Natural Gas Technical Analysis: Long-term trend down; short-term trend up

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 this year. Bullish convergence occurs when price makes new lows but RSI fails to copy. It can be indicative of a bullish reversal in the offing. 

Given the longer-term trend is bearish, Natural Gas would need to break above the last lower high of the long-term downtrend at $3.079 MMBtu to reverse the trend. 

As things are 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 unfolded during 2023. 

Natural Gas: Weekly Chart

Scoping into the daily chart, however, it can be seen that price is rising up within its consolidation range. 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 4-hour chart shows the pair in a short-term uptrend making successively higher highs and higher lows.  

Natural Gas: 4-hour Chart

This falls in line with the bullish RSI convergence observed on the weekly chart. 

Yet on the 4-hour chart, the RSI is now blinking ‘overbought’ (above 70), which is a signal for bulls not to add any new long positions. It has come down from its peak and in the event that RSI exits the overbought zone and returns to neutral territory, it would be a signal for short-term horizon bulls to close their long positions altogether, and is likely to be indicative of a pullback in price after the recent strong gains.