Gas prices lost momentum to sustainable growth

US gas prices broke down through a medium-term uptrend line and are now trying to stabilize in the range of 3–3.4. After losing important technical support, it will be difficult for gas prices to return to sustainable growth, especially in anticipation of spring and the imminent end of the heating season. In the coming days there is a high probability of another decline in price to the level of 3.1 with an attempt to consolidate at the December lows.

Another aggravation of trade relations between the US and China may cause serious damage to the planned LNG projects. China imposed a 15% tariff on US liquefied gas, which will surely lead to a shift in imports in favor of other LNG producers. In turn, US companies are forced to find new buyers, which puts into question plans for a significant increase in liquefied gas exports. As a result, more gas will stay inside the country and its prices will come under pressure again.

Meanwhile, Europe's gas consumption may start to decline before spring. Gas prices in the EU have reached highs since the beginning of 2023 and coal becomes more attractive as an alternative for power plants. Despite a negative effect on the environment, the usage of coal will help contain the rise in price of electricity. LSEG estimates that under the current term contract structure, coal will be more profitable than gas in the EU until 2026.

Another way to limit gas price increase could be to ease regulations on filling storage facilities. The current EU rule requires countries to have at least 90% of gas in reserves by November 1. Because of this, gas purchases in summer, when it is usually cheaper, may be too expensive, especially if storage facilities end the heating season with less than 30% full. Germany, Italy and the Netherlands intend to ease the current norm, which will reduce gas demand between April and October.

The Stochastic indicator almost reached the overbought zone and may soon give a sell signal. The benchmark for the bears will be the mark of 3.1.

Consider the following trading strategy:

Sell gas at the current price. Take profit — 3.1. Stop-loss — 3.45.