Is the natural gas price likely to slide into year-end?
Outlook on natural gas prices in the context of their seasonality.
Where are natural gas prices likely headed into year end?
It is a well-known fact that natural gas price fluctuate in response to weather shifts. Colder weather and forecasts thereof, low stockpiles and/or supply disruptions, higher demand push natural gas prices up and forecast as well as actual clement weather, high stockpiles and ample supply and/or lower demand tend to lead to a lowering of the gas price.
Seasonality and market dynamics are also playing a role, though.
When looking at seasonality the natural gas price is about to enter a period in which it tends to decline between the latter part of November and mid-February.
As the Seasonax 25-year seasonal trend of natural gas chart shows, a softening of the natural gas price usually already begins in October.
Seasonal trend of natural gas over 5 years chart
It is important to stress that seasonality is looking back at average price movements, though, often over decades, and that it should only be taken into account after having analysed fundamental data such as the weather, geopolitical impacts on and price movements of the natural gas price.
Last year’s huge spike in the natural gas price due to the invasion of Ukraine by Russia has mostly abated but only a few weeks ago the fact that a vessel was hit by a missile when entering the Ukrainian port of Odessa led to a surge in the natural gas price.
At the beginning of this week a cold front in the US, oversold market and short-covering by traders led to a jump in the natural gas price.
Having said that, when looking at front month E-mini natural gas futures, for example, there are also technical reasons why any such bounce is likely to run out of steam below the late-October high at 3.640.
This high on the daily chart was accompanied by negative divergence on the Relative Strength Index (RSI) which didn’t confirm the higher high and instead made a lower high.
Such negative divergence can be seen as an early warning signal of a probable sell-off in the opposite direction of the prevailing trend, as was the case in early-November.
E-mini natural gas front month futures daily candlestick chart
Since the same negative divergence can be spotted on other daily natural gas charts, such as the Dutch TTF gas baseload front month future, this technically negative story is valid for natural gas prices in general.
Dutch TTF gas baseload front month futures daily candlestick chart
If indeed a top is in the process of being formed as European gas storage facilities are nearly filled to brim ahead of the European winter months, a slip back towards the TTF front month futures July-to-November uptrend line and the 200-day simple moving average (SMA) at 39.038 to 38.245 is likely to ensue over the coming weeks and months.
On the E-mini front month futures chart the May-to-November uptrend line at 2.766 is expected to be reached and perhaps also the 200-day SMA at 2.615.
This medium-term technical outlook, accompanied by bearish seasonality, will remain valid as long as no rise to above the October highs is seen on the natural gas price.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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