Jump to content

Natural gas slump continues, but hope is in sight for bulls


MongiIG

Recommended Posts

Natural gas prices continue to plummet as fears of a European supply crunch fade. However, could cyclical trends signal hope for a bullish reversal?

BG_oil_pump_Brent_WTI_gas_flare_23423477Source: Bloomberg
 

 Joshua Mahony | Senior Market Analyst, London | Publication date: Friday 10 February 2023 

Natural gas prices collapse as European supply fears subside

Natural gas has seen huge volatility over the course of the past year, with prices having lost 75% since reaching fresh 14-year highs in August. Much of that bull run was borne of fear around how Europe might struggle to obtain enough non-Russian supplies to see out the winter. Undoubtedly the Russian invasion of Ukraine brought huge upheaval in the providing of gas in Europe, with countries having to shift their supply chains to become far more diversified after years of Russian reliance. Instead, many looked towards the US and Asian liquified gas (LNG) which could be shipped in to top up European supplies. This explains why the European spike in gas prices also extended to the likes of the US (to a lesser degree). With European efforts to fill storage proving successful, the relatively mild winter has ensured that the potential crisis failed to come to fruition this time around.

From a supply perspective, it is important to track the European storage levels to signal the chances of a supply crunch like that which sparked the sharp price spike in the first half of 2022. This table below provides us with several key pieces of information. Firstly, we can see that gas injections were particularly elevated this time around, with withdrawals also seeing a major decline throughout December. It is important to note the different refilling and withdrawal periods for gas, with obvious implications for the underlying natural gas price (we will get onto that). Looking at current storage levels, they are almost double what was in place this time last year.

Gasstorage100223.PNGSource: GIE (Gas Infrastructure Europe)

European Natural gas demand adjusting to higher prices

On the demand side, we have seen rising prices hit demand, with consumers and businesses taking a more cautious approach than would ordinarily be the case. The chart below highlights how most nations have seen consumption across households and industry decline significantly compared with the 2019-2021 averages. Notably, the one area that has seen a more mixed experience is in power generation, with France and Spain in particular utilizing significantly higher levels of natural gas for power generation despite increased cost. Nonetheless, demand is overwhelmingly below historical levels given the rise in prices. While many providers have been slow to pass on the recent decline in prices to customers, it would make sense that demand will rise once again is natural gas remains where it is. European gas prices are back to the lowest levels since late 2021.

Gasdemandbruegel100223.PNGSource: Bruegel

Will next winter provide the next supply squeeze?

With China demand coming back onto the market after an extended period of lockdowns, it is worthwhile noting that Europe may find it more difficult to obtain Asian gas in advance of next winter. Europe tends to start picking up its ‘injection’ phase in March/April, which has market important upward inflection points in the past. The fact that European storage levels are so healthy should help alleviate any fears of another dramatic spike like that seen in 2022. However, the prospect of Europe competing for global gas supplies with a resurgent China certainly does bring the possibility that we see some strength come back into the market once the refilling stage kicks off next month.

Natural gas technical analysis

The monthly US natural gas chart highlights the fact that March/April has often provided bullish turning points after price has seen dramatic periods of downside. The fact that these turning points come as the withdrawal phase (winter) turns back to injection phase (spring) is no coincidence. Nonetheless, it is notable that things often only really get going later into the year as we start heading towards the winter. This could mean that the dramatic declines seen over recent months could soon turn into a new consolidation or recovery phase. Down below, watch for the December 2020 low of $2.264 as potential support. A break below that point would signal expectations of further downside. Also keep an eye on the stochastic oscillator, with a break back up through the 20 threshold signalling a bullish shift in momentum. Looking at the past fourteen years of price action below, it provided four bullish reversals out of oversold on the stochastic. Each of those provided very timely signals of an upward turn for the market. The average recovery seen after seeing a bullish monthly stochastic cross out of oversold is 195%. Clearly this can provide a very important tool to signal an impending upside in price action.

NG-Monthly-2023_02_10-14h51.pngSource: ProRealTime

The short-term picture continues to look very bleak, with price action trending within a pattern of lower highs. This week has shown some signs of tentative strength, with price rising up into a deep 76.4% Fibonacci retracement at $2.688. The subsequent selloff has failed to break into a new low, with price starting to show some signs of strength moving into the weekend. However, the bearish trend does remain in play unless price pushes back above the $2.789 swing-high.

NG-4-hours-2023_02_10-15h12.pngSource: ProRealTime
  • Like 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Hi @chemist66, we may need to look into your account to understand why it's not going through. Could you please send an email to helpdesk.uk@ig.com from your registered email address with your query? This way, we can investigate and assist you further. Regards, AshishIG
    • ASX: COLES GROUP LIMITED. – COL Elliott Elliott Wave Technical Analysis TradingLounge (1D Chart) Greetings, Our Elliott Wave analysis today updates the Australian Stock Exchange (ASX) with COLES GROUP LIMITED. – COL. In our ASX Stocks Top 50 forecast service, we have accurately forecast a price decline from a high of around 17.15 down to around 16.00 at the current low. And we are now identifying COL could move higher in the short term outlook. ASX: COLES GROUP LIMITED. – COL Elliott Wave Technical Analysis   ASX: COLES GROUP LIMITED. – COL 1D Chart (Semilog Scale) Analysis Function: Counter trend (Minute degree, green) Mode: Corrective Structure: Double Zigzag Position: Wave (b)-purple of Wave ((y))-green Latest forecast: Accurate forecast Details: The short-term outlook indicates that wave ((y))-green is unfolding as a Zigzag, and wave (a)-purple has ended. Therefore, wave (b)-purple is expected to continue pushing lower, seeking support around 16.01 - 15.71 before wave (c)-purple returns to rise higher. Pushing higher off 17.15 would renew the bull market view. Invalidation point: 15.35       ASX: COLES GROUP LIMITED. – COL Elliott Wave Technical Analysis TradingLounge (4-Hour Chart) ASX: COLES GROUP LIMITED. – COL Elliott Wave Technical Analysis ASX: COLES GROUP LIMITED. – COL 4-Hour Chart Analysis Function: Counter trend (Minute degree, green) Mode: Motive Structure: Impulse Position: Wave (c)-purple of Wave ((y))-green Details: The shorter-term outlook suggests it appears the (b)-purple wave has bottomed, but a move higher than level 16.5 is needed to confirm this outlook. If this forecast is correct, wave (c)-purple will be opened to continue pushing higher, aiming for higher targets. Invalidation point: 15.37     Conclusion:   Our analysis, forecast of contextual trends, and short-term outlook for ASX: COLES GROUP LIMITED. – COL aim to provide readers with insights into the current market trends and how to capitalize on them effectively. We offer specific price points that act as validation or invalidation signals for our wave count, enhancing the confidence in our perspective. By combining these factors, we strive to offer readers the most objective and professional perspective on market trends.   Technical Analyst: Hua (Shane) Cuong, CEWA-M (Master’s Designation). Source : Tradinglounge.com get trial here!  
    • Mathews Darcy mentioned that the quarterly production report released by BHP Group recently showed strong performance in copper and iron ore businesses, but adverse weather conditions affected coal production. Despite the upward trends in copper and iron ore prices, the market response to the stock price of BHP was relatively subdued. This article will delve into the analysis of the quarterly report of BHP Group and discuss its impact on the stock market and the reactions of investors. Quarterly Performance and Market Response Mathews Darcy pointed out that despite price increases in copper and iron ore on Wednesday, the stock price of BHP only saw a slight growth after the quarterly report release, reflecting the tepid response of investors to the report. Particularly noteworthy is the decline in the stock price of BHP amidst significant overnight increases in copper and nickel prices and iron ore prices maintaining a six-week high. Additionally, Mathews Darcy noted that major brokerage firms have begun adjusting their ratings and price targets for BHP based on the latest quarterly data. Several brokerage reports indicate that despite strong demand for copper and iron ore, the overall performance of BHP did not meet market expectations, possibly due to production constraints in its coal division. Investment Strategies and Future Outlook Mathews Darcy advised that when considering BHP stock, investors should carefully analyze the performance of its various divisions and future market prospects. While price fluctuations in mineral resources offer profit opportunities for BHP, investors should also be aware of the potential impact of price fluctuations on company performance. Furthermore, paying attention to brokerage research reports and rating updates will help investors better understand market dynamics and potential investment risks. Mathews Darcy also emphasized the importance of diversified investments, especially in an industry facing price volatility and geopolitical risks. Diversifying investments among different resource stocks can effectively reduce the impact of single market fluctuations on the investment portfolio.
×
×
  • Create New...
us