Natural Gas Snaps Two-Day Rally Following Ukraine Move into Russia

Market Overview

Natural Gas prices experienced a slight decline of nearly 1% on Thursday after a substantial 8% increase earlier in the week. This impressive rally was fueled by geopolitical tensions following reports that Ukrainian forces had crossed the Russian border and targeted Russian installations in the Kursk region. As a result of this news, market participants anticipated potential disruptions to gas supplies from Russia to Europe, which contributed to the price surge observed on Tuesday and Wednesday.

Geopolitical Developments

The recent surge in Natural Gas prices was driven by the fear of further restrictions or a complete halt in Russian gas supplies to Europe, a concern that emerged following Ukraine’s military actions. The Kursk region is particularly significant due to its role as a critical intake point for gas supplies, which may explain Ukraine’s strategic focus on this area. The initial spike in prices reflected the market’s reaction to these geopolitical risks and the possibility of supply constraints.

US Dollar Movements

In parallel, the US Dollar Index (DXY), which measures the value of the Dollar against a basket of six major currencies, has also seen a retreat after a brief two-day recovery. The inability of Dollar bulls to push the index above a key resistance level has led to a decrease in the Dollar’s strength. This technical rejection raises the risk of further declines for the US Dollar. Traders are awaiting the weekly US Jobless Claims data, which could introduce additional volatility into the market.

Current Pricing

As of the latest update, Natural Gas is trading at $2.15 per MMBtu. This price point reflects a slight easing after the significant gains earlier in the week.

Key Market Movers and News

• EIA Storage Data: The Energy Information Administration (EIA) is scheduled to release its weekly Natural Gas Storage Change data at 14:30 GMT. Analysts expect a build in storage of between 18 billion and 22 billion cubic meters for the week ending August 2. This data will be closely watched as it provides insight into supply levels and market balance.
• Geopolitical Tensions: The Kursk region’s sensitivity to gas supply disruptions underscores why Ukraine targeted this area. According to Bloomberg, this strategic move by Ukraine could be aimed at impacting Russian gas infrastructure and, consequently, European energy supplies.
• Weather and Demand: In Egypt, temperatures are beginning to moderate, which may lead to a reduction in the country’s high energy demand. This potential decrease in demand could influence global Natural Gas prices, given Egypt’s significant energy consumption.
• Demand Forecasts: Bloomberg forecasts a decline in Natural Gas demand, attributed to robust European storage levels for the upcoming heating season and decreasing demand from Asia. This reduction in global demand could exert additional pressure on Natural Gas prices.

Technical Analysis: Dead Cat Bounce Ahead?

The recent rally in Natural Gas prices, while notable, might be short-lived. The two-day recovery has allowed the Relative Strength Index (RSI) on the daily chart to move away from oversold conditions, suggesting there might be room for another downward move. Despite the recent rebound to $2.15, this level could face increasing pressure, potentially leading to a further decline.

Resistance Levels:

• Short-Term Resistance: If bullish developments emerge and push Natural Gas prices higher, key resistance levels to watch include the 100-day and 200-day Simple Moving Averages (SMA) near $2.35. Surpassing these levels would represent a significant recovery and could signal the end of the recent losing streak.
• Extended Resistance: Further upward movement might encounter resistance at the 55-day SMA, which is positioned around $2.51. A test of this level could indicate a stronger bullish trend, but achieving this would require substantial positive momentum.

Support Levels:

• Immediate Support: On the downside, the $2.13 level is critical. A breakdown below this point could signal further declines, with $2.00 becoming a key level to monitor. A sustained move below $2.00 could suggest a longer-term bearish trend, potentially pushing prices towards $1.53.
• Long-Term Outlook: Although still a distance away, a return to levels below $2.00 could indicate a more extended downward trend, with the possibility of reaching $1.53 if bearish conditions persist.

In summary, while Natural Gas prices experienced a notable rebound earlier in the week, the market faces a range of factors that could influence future price movements. Geopolitical risks, technical resistance, and changes in demand and supply dynamics will play crucial roles in determining the direction of Natural Gas prices in the coming days.