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Natural gas looks likely to recover despite early pullback


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Natural gas looks likely to recover despite early pullback

Natural gas weakens in early trade, but we have seen tentative signs that price might have bottomed out after latest selloff.

bg_gas_hob_870778.JPGSource: Bloomberg
 Joshua Mahony | Senior Market Analyst, London | Publication date: Monday 29 November 2021

Natural gas drops at the open, yet resurgence could be in the offing

Natural gas prices have dropped back at the beginning of trade this week, with price failing to maintain the sharp gains seen on Friday.

Expectations of further lockdowns did bring upside for gas, while a report from the US IEA stated that they had seen a 1.7% reduction in production set against a 6.8% rise in demand. Broader energy markets have suffered on the premise that crude demand would fall if the Omicron variant led to further lockdowns.

However, natural gas could benefit from such a scenario, with people instead staying at home to drive up heating demand through winter. The question around winter demand is an important one, with European inventories already well below levels typically seen at this time of the year. Relations between Europe and Russia are important on that front, with the flow of gas from Russia key to keeping a lid on prices.

However, with Russian troops at the border with Ukraine, there is a risk that there is a breakdown in relations between the West and Russia leading to the use of natural gas as a negotiating tool. Thus, with winter demand potentially driving down inventories and Russian exports coming into question, there is a good chance we see another turn higher despite the current pullback.

Pullback could bring buying opportunity

Friday’s rise through the $5.45 swing-high brings an end to the trend of lower highs seen over the course of the past month. With the latest low coming in to place at the key $4.76 support level seen in late-September, this looks like a good place for the price of natural gas to have bottomed out.

As such, a bullish outlook is in play here, with a break below that key $4.76 support zone required to negate that bullish view.

NG-4-hours-2021_11_29-12h19.pngSource: ProRealTime
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