Chevron headquarters in Australia

Natural Gas Prices Fall but Chance for Volatility Remains

By:Thomas Westwater

Natural gas futures were on track to finish the week slightly lower despite a modest jump on Friday. Where next?

  • Natural gas futures fell slightly this week.
  • Baker Hughes data shows a drop in the U.S. rig count.
  • The technical outlook shows range trading remains.

Natural gas futures (/NGV3) were on track to finish the week slightly lower despite a modest jump on Friday. Several factors, domestically and abroad, are influencing energy markets, but volatility drivers have eased recently.

Still, markets remain in a precarious position as we head into the winter heating season in the Northern Hemisphere. Data released on Friday from Baker Hughes (BKR) showed that U.S. natural gas rigs dropped by three to 118. That was the first cut in three weeks. If that trend continues, it could indicate reduced future flows, which may prompt higher prices.

Chevron strikes in Australia end with a resolution

Two liquified natural gas (LNG) facilities in Western Australia will soon see production resume after workers represented by a labor alliance struck a deal with the plants' operator, Chevron (CVX). Those plants represent nearly 10% of global LNG supply.

The labor alliance announced news of the tentative agreement on Friday and will work to finalize the deal with Chevron, according to a statement by the Offshore Alliance’s spokesperson. The resolution ends a weeks-long standoff and follows a labor dispute settled last month at another Australian LNG plant.

Russia stokes volatility in energy markets, again

When one source of volatility recedes, another appears. Earlier this week, Russia announced that it would temporarily ban the export of diesel and gasoline fuels in an unexpected but unsurprising move. This news bleed over into natural gas markets in Europe, where Dutch front-month futures rose to their highest level in over a month.

While Russia didn’t make a move on natural gas exports, which European countries heavily rely on, the export ban on fuels has stoked concern about the bloc’s supply going into the winter.

Thursday’s. surge in European futures was also due to a drop in flows to a key U.S. natural gas terminal. Meanwhile, European gas fields in Norway are ramping up production as plants in the region exit their maintenance periods.

Overall, the global market seems to be calming when considering the easing in supply disruptions amid weak European demand and buffered inventory levels there. We shouldn’t write off the chance for more volatility, however.

Technical outlook shows range trading remains

Since August, prices have been largely rangebound between $2.4 and $2.9. A breakout from the range could indicate a directional move if it isn’t quickly sold or bought. For now, though, judging by the moving average convergence/divergence (MACD) crossing back below its signal line, prices may be biased lower.

ng chart

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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