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Natural Gas Outlook: US Prices Sink Despite Global Supply Disruptions

Natural Gas, Global Supply Disruptions, Colder US Temperatures – Talking Points

  • Updated NOAA 8-14 day outlook drags US natural gas prices lower
  • EIA inventory levels continue to stabilize towards longer-term average
  • Global supply disruptions continue after cold shock moves through Asia

US natural gas is trading at multi-week lows after the National Weather Service’s Climate Prediction Center released an updated 8-14 day temperature probability outlook on Tuesday. The updated forecast shows warmer-than-average temperatures expected across the southern United States, extending up through portions of the Northern Plains. Demand expectations were tempered, dragging prices down near the 2.5 handle.

NOAA 8-14 DAY OUTLOOK TEMPERATURE PROBABILITY

NOAA 8-14 day outlook

Source: NOAA

January is on track to record the third consecutive monthly decline in natural gas prices, with the current month’s gain nearly wiped out following the latest selloff. This follows a 14.07% drop in November and 11.90% in December. Granted that, natural gas remains well off the December low when an unusually warm weather forecast sank prices.

Further losses may be less severe, with US inventory levels continuing to trend lower toward the 5-year average, according to the latest Weekly Natural Gas Storage Report from the EIA. The week ending January 8 saw a net decrease of 134 Bcf versus the prior week, bringing the gap from the 5-year average down to 218 Bcf. According to the DailyFX Economic Calendar, the next EIA inventory report will cross the wires on Friday January 22, one day later than the normal Thursday release due to the US holiday.

EIA UNDERGROUND INVENTORY LEVELS

EIA inventory levels

Source: EIA

Global supply disruptions may also help underpin US natural gas prices after unusually cold weather spread across Europe and Asia, causing the Asian benchmark Japan-Korea-Marker (JKM) natural gas price to rise to record high levels. European natural gas also rallied on colder temperatures, with prices extending into multi-year highs on the Dutch TTF hub, bolstered by the event shock in Asia.

Global Natural Gas Benchmarks – Daily Chart

Global Natural Gas benchmark prices

Chart created with TradingView

While temperatures across Asia have moderated along with prices, the event drained inventory levels throughout several regions, particularly in Japan. Shipping disruptions followed as buyers competed for vessels to import liquified natural gas (LNG) in an effort to shore up depleted inventory levels. Charter rates for vessels skyrocketed to record levels, according to Baltic Exchange data. While the US market is well insulated from price shocks in Asia, the event could bolster export demand for weeks or months, which may help underpin prices.

Baltic Freight Route Liquid Petroleum Gas Average Price Option CME – Weekly Chart

Baltic Index Shipping costs

Chart created with TradingView

Natural Gas Technical Outlook:

Prices broke below the 50% pseudo-Fibonacci retreatment level from the September – November move. The move lower formed off trendline resistance, with a subsequent drop below the 20 and 50-Day Simple Moving Averages.

A continuation lower will bring the 61.8% Fibonacci level into focus, or possible support from a September trendline. Lower ground may likely be the most probable outcome, with the MACD line moving below its centerline and signal line. To the upside, the aforementioned SMAs may offer resistance, and above that, trendline resistance.

Natural Gas Daily Price Chart

Natural gas price chart

Chart created with TradingView

Natural Gas TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter