Natural Gas Prices Rise as Seasonal Demand Comes into View
Seeing energy prices increase this time of year because of seasonal demand is not uncommon. Yet, there has been a significant change in weather forecasts during the last 24 hours.
- Natural gas prices surge on cold-weather outlook.
- European gas outages contribute to volatility.
- Middle East tensions keep energy traders on edge.
Natural gas futures (/NGZ3) rose over 7% on Tuesday to reverse Monday’s price action and put prices on track for further increases from last week, when the commodity finished 20.14% higher. That was the largest weekly percentage gain since August 2020 and happened despite falling crude oil prices.
What is pushing natural gas higher?
It isn’t unusual to see rising energy prices at this time of the year due to seasonal demand trends, however, we’ve seen a notable shift in weather forecasting over the past 24 hours. Those forecasts have shifted to show colder-than-average weather trends in the Northeast, where a considerable amount of energy demand is concentrated.
European supply outages pressure U.S. prices
Along with cooler weather as the winter withdrawal season kicks off, we are seeing several outages in Europe that should increase demand for U.S. liquefied natural gas (LNG) cargoes. Prices in Europe, however, are falling as an intense storm is expected to bolster wind production across Western Europe.
A gas plant in Norway, the Nyhamna processing plant, suffered an unexpected outage earlier this week and isn’t scheduled to return to service until Thursday at the earliest. The outage affects feed gas supply into the United Kingdom.
Several other North Sea plants and fields are also offline or undergoing maintenance. According to Bloomberg data, the Gullfaks and SEGAL fields facilities are offline for the next couple of days, taking off nearly 11 million cubic meters (mcm) of capacity. The Nyhamna gas plant will also be offline for two days to start November, taking an additional 27.8 mcm offline
Middle East tensions continue to underpin volatility
Despite escalating military actions in Gaza by the Israeli Defense Forces (IDF), the potential for a broader conflict is contained, for now. Still, war is unpredictable, and things can change quickly; energy traders know that and it's likely contributing to some of the outsized moves we’ve seen recently in the commodity.
The Israel Energy Ministry has also continued business as usual, granting twelve licenses this week to companies such as BP plc for exploratory work. The licenses also show that the private sector has confidence in Israel’s ability to maintain the security posture in the region for operations to continue as normal.
Natural gas technical outlook
Prices made quite the move today, rising from the 23.6% Fibonacci retracement of the October range and stopping short of the 78.6% Fib, a level that prices failed to clear in last week’s rally. That said, the Fib level may represent a level that bulls need to clear before prices can continue higher. Meanwhile, the MACD oscillator is flashing a bullish signal with an imminent bullish crossover.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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