Changes in gas supply and demand balance predict price reversal upwards

21 February 2024 86
Changes in gas supply and demand balance predict price reversal upwards

According to the IEA's latest report, global gas demand growth will accelerate this year due to cooler winter temperatures and lower prices, with emerging economies leading the rise in consumption, but geopolitical risks and supply-side concerns could trigger renewed volatility.

Demand for natural gas is recovering as a result of expected colder temperatures and easing prices, according to the IEA's latest Gas Market Report, but limited new LNG production means supply will remain tight.

Global gas demand increased by just 0.5% in 2023 as growth in China, North America and gas-rich countries in Africa and the Middle East was partially balanced by declines in other regions. With pandemic restrictions eased and economic activity resumed, China regained its position as the largest LNG importer in the world, and natural gas demand rose by 7%.

On the contrary, natural gas consumption in Europe dropped by 7% to the lowest level since 1995. This decline was exacerbated by the fast expansion of renewables and increasing availability of nuclear power, which put pressure on natural gas demand in both Europe and developed Asian markets, resulting in lower prices.

Global gas demand is forecast to rise by 2.5%, or 100 billion cubic meters, in 2024. As for supply, gas availability remained rather limited in 2023 because global LNG production growth failed to meet expectations. Thus, the increase in production was insufficient to offset the ongoing decline in gas deliveries to Europe. Supply growth was also highly concentrated geographically, with the US becoming the world's largest LNG exporter, contributing 80% of additional LNG supply in 2023.

LNG supplies are expected to rise by 3.5% this year, well below the 8% growth rate seen between 2016 and 2020, as delays in building new liquefaction plants and problems with feedstock gas availability at existing projects could push supply growth to 2025.

Increased demand and tight supply could significantly contribute to gas price appreciation during the year.

From a technical point of view, natural gas prices dropped to the support level formed back in 2015. The apparent divergence of the price and its oscillator (using RSI as an example) also indicates a potential reversal upwards.

The overall recommendation is to buy natural gas.

Profits should be taken at the level of 3.000. A Stop-loss could be set at the level of 1.000.

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

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