Natural gas price correction is fundamentally justified

31 May 2023 217
Natural gas price correction is fundamentally justified

Since the beginning of May, a sharp momentum in natural gas prices in the U.S. has been observed. Now the momentum is fading, the correction is persisting for the fifth trading session in a row.

This movement is driven by fundamental factors. Increased production in Canada, weak demand in Europe, and the absence of extreme high temperatures in other regions of the world put pressure on natural gas prices.

 

Wildfires in Canada, which forced the suspension of natural gas production, can be pointed out as one of the main reasons for rising gas prices. However, the missing volumes are now returning to the market, which is putting pressure on prices.

According to S&P Global Commodity Insights, natural gas production in Canada has rebounded to 17.5 billion cubic feet per day after the Alberta wildfires subsided significantly.

The country's gas production is still down by about 1 billion cubic feet per day, according to a company's press release. That level is five percent below the previous year's average. Cooler weather and rains helped with firefighting in Alberta's oil and gas producing areas, which contributed to the recovery in production.

 

Additionally, the price of natural gas is being pressured by an oversupply of feedstock in Europe.

Industry demand for natural gas has been declining for almost 2 months in a row. This has led to the longest string of losses in gas prices in six years.

According to some experts, if consumption remains low and renewable energy production increases, gas prices could briefly drop below zero in some European markets this summer.

As of May 24, EU natural gas storage was 66.71 percent full, according to Gas Infrastructure Europe. That's the highest seasonal level in 10 years.

 

According to technical analysis, the price of natural gas in the U.S. may continue to decline. Yesterday it broke through the 0.382 Fibonacci level from the last correction wave. The nearest downside target will be the level of 0.236, matching the price of $2.20. A stop loss could be placed upon breaking the downtrend and rising above the 0.382 Fibonacci level. A stop will be at the gas price of $2.36.

 

A decline in the natural gas price:

Take profit – 2,20

Stop-loss – 2,36

This content is for informational purposes only and is not intended to be investing advice.

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