- Natural gas price has surged by about 98.04% since the beginning of the year.
- Despite the recent pullback, it is still on an uptrend amid supply concerns.
- Inventory data and the situation in Europe will shape the market in the short term.
Natural gas surge
Natural gas price has remained buoyed above the support zone of $5.00 despite the recent decline. After surging past this psychological level two weeks ago, it hit its highest level in over 7 years in the past week.
Since then, it has pulled back as the profit-taking mode rocked the market since Thursday. On a daily chart, the commodity is hovering around the support zone of $500 at its current price of $5.03.
Even with the recent decline, the surge in natural gas prices is undeniable. Since the beginning of the year, it has risen by about 98.04%. Granted, the commodities market was in a bull run during the year’s first quarter. However, while assets such as iron ore and copper have since dropped from the record highs attained in mid-May, natural gas has continued to surge.
The harsh weather experienced in the recent past is largely responsible for the shortage. In February, the extremely low temperatures recorded in Texas resulted in frozen wells while increasing the need to heat homes. Besides, the record-high temperatures experienced between June and July lowered hydropower production while increasing the commodity’s demand for use in air conditioners.
The most recent weather event that boosted natural gas prices is Hurricane Ida. Based on data from the Bureau of Safety and Environmental Enforcement, over one-third of gas output in the Gulf of Mexico remained closed as of Friday.
Gas crisis in Europe
The situation in Europe has further heightened concerns over natural gas supply. Throughout the continent, the crisis has been brewing for years as the ongoing campaign for green energy suppresses investments in fossil fuels. Besides, the enacted environmental policy has resulted in nuclear and coal plants being shut down in some countries. This move has lessened the number of plants that would offer back-up during such times of gas shortage.
Energy prices in Europe are so high that two key fertilizer producers have indicated that they will have to either curb production or shut their plants in totality. Notably, reduced supplies from Russia have worsened the situation. As such, governments in France, Greece, Spain, and Italy have had to step in to cushion customers from the skyrocketing prices.
US inventory data
In the ensuing sessions, natural gas prices will also react to the inventory data by the Energy Information Administration (EIA) on Wednesday. In the previous release, the agency’s report indicated that there was 83 billion cubic feet (Bcf) of the commodity stored underground for the week ending on 10th September.
Notably, the figure was higher than the forecasted 76 Bcf and the previous 52 Bcf. This is usually the period when drilling companies stock up on the product in preparation for the heightened demand during the winter season.
On the one hand, the amount of natural gas in storage is at its highest level since mid-June. However, it remains lower than the recorded level at a similar period in the past year. In mid-September 2020, inventories were at 89 Bcf. As such, this week’s stockpiles data will avail further cues at a time when investors are concerned over the commodity’s shortage during winter.
Natural gas price outlook
Natural gas price remains buoyed above the support zone of 5.00 despite the recent decline. Since Thursday, the energy product has fallen by about 11.21%. However, from a broader perspective, it has surged by 98.04% since the beginning of the year. In September alone, it has risen by 18.87%.
At the time of writing, natural gas price was down by 1.2% at 5.03. On a daily chart, it is trading above the 25 and 50-day exponential moving averages. It is also above the long-term 200-day EMA. Based on both the fundamentals and technicals, the price will likely remain above 5.00 in the short term.
In the near term, it may trade within a tight range of between 5.00 and 5.10 as the bulls gather enough momentum to retest last week’s high. However, for that to happen, it will need to break the resistance at 5.41 and 5.50. A move below the 5.00 support zone will invalidate this thesis.