Natural Gas rallies as freighters are forced to depart Red Sea routes

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• Natural Gas further recovers and tests important resistance at $2.46
• Tensions are building after Houthi rebels attacked another carrier in the Red Sea.
• The US Dollar depreciated last week and is facing more downturn ahead of Christmas. 

Natural Gas (XNG/USD) is jumping higher for a fourth straight day in a row. Main driver this Monday is news from the Red Sea where a Norwegian vessel got hit by missiles fired by Houthi Rebels claiming the vessel carried cargo with destination Israel. Main shipping companies like Maersk and MSC have instructed their fleet to clear the area and take longer routes for delivering their cargoes, which will add to transportation costs for the end user. 

Meanwhile, the US Dollar (USD) has retreated substantially, though with the dust settling, the current weakness may well not be permanent. When comparing last week’s data from both the US and Europe against their respective central bank monetary policy stances, the Federal Reserve (Fed) looks to be the one holding all the best cards for a soft landing. In Europe the European Central Bank (ECB) looks reluctant to make any cuts in 2024 while several economic indicators are retreating further into contraction and might soon reveal a backslash in its economic performance and growth.  

Natural Gas is trading at $2.46 per MMBtu at the time of writing.  

Natural Gas Market Movers: Another pickup in geopolitical tensions

• The United Kingdom will introduce a carbon border tax in 2027 which will be added onto the price of cheap carbon-intensive imports, such as steel, making them equally expensive as onshore-produced products. 
• Houthi rebels attacked another vessel in the Red Sea, forcing main shipping companies to cancel routes in the region and take a deviating, longer route, which will add to transportation costs being passed on to the client.
• Gas Power is seeing its position in the European power usage slimming down, replaced by renewable sources, a Bloomberg report revealed this Monday. 
• Israel is pushing back against several international calls for a cease-fire. 

Natural Gas Technical Analysis: Rebound into last week of 2023

Natural Gas looks to have found a factor that might run up its prices. The recent number of events in the Red Sea is forcing shipping companies to take longer, and more expensive routes to get their cargoes delivered without any risk. This premium is starting to find its way into the Gas prices, which might see a jump back to $3.00 if this risk continues to persist. 

On the upside, Natural Gas could 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 $3.00 with the 100-day SMA nearby. 

The dust could quickly settle on this blip of macroeconomic tensions in the Red Sea. European Gas reserves are still well stocked, so there is no rush to get LNG shipments in, which makes those longer routes unlikely to trigger any supply bottlenecks near term. Small support could be seen near $2.20, with the low of June. Firmer support should come in near $2.10, April’s low, at the yellow supportive line. 

XNG/USD (Daily Chart)