Natural gas prices in the U.S. try to stabilize after a strong drop at the beginning of the current week. The price pullback from 3-month highs reached 17% before gas prices were fixed in the range of 2.8–2.9. The scale of correction is already quite significant, but it does not mean that quotations will return to growth. Fundamental situation on the gas market rather favors continuation of the downward movement.
The initial surge in gas prices occurred on expectations of a sharp cold snap in the U.S. The drop-in temperature turned out to be severe indeed, but still did not reach the extremes of December 2022 or February 2021. Despite setting a historical record for gas demand on Tuesday, the 167.8 billion cubic feet of demand was less than analysts expected. This was another reason why gas buyers decided to take profit.
In addition to increased gas demand and lower gas production, the U.S. freeze also led to restrictions on LNG exports. Gas transportation volumes to U.S. LNG plants fell by 45% this week. Facilities in Louisiana and Texas announced delays or complete cancellation of LNG export shipments. This means additional gas in storage, while inventories are more than 10% above seasonal average levels.
There is no buyer activity on the global gas market, even despite restrictions on ships passing through the Red Sea. According to Reuters analysts, the U.S. is able to replace the LNG supplies that Qatar and other Middle Eastern countries planned to send to Europe. As a result, Asian LNG prices continue to hold near 7-month lows of $10 per million British thermal units, in Europe $9.6.
The current pause in the gas market sell-off is due to the price reaching the 50% Fibonacci level (2.81). If this level is broken, the next downside target of 2.67 will become relevant.
The following trading strategy may be offered:
Selling gas when the price drops below the level of 2.81. Take profit – 2.67. Stop-loss – 2.95.