Natural gas prices gap lower while coal prices renew gains

Natural gas prices gap lower

Natural gas prices started a sharp correction from all-time highs over the last few days and even gapped lower at the start of the new week.

Energy prices for fossil fuels such as oil, coal and natural gas have soared since the onset of the Russia-Ukraine war and have been a major contributor to global inflation.

Coal prices rise on prospect of subsidising European energy needs

In the short-term, however, we are seeing coal prices rise as they trade inversely to that of natural gas.

The suggestion for the move is that disruptions to European imports of natural gas from Russia are likely to see increased use of coal to help fulfil energy needs.

Russian gas supplied to Europe through state-owned entity Gazprom, has been well below contractual agreements. This has been due to sanction-induced infrastructure obstacles and delays to equipment being returned from maintenance outside of the country.

Germany, Europe's largest economy, has been the first to suggest a temporary shift back to coal, to subsidise energy requirements and allow time to restock gas inventory ahead of the autumn (fall) and winter months.

German policymakers will submit a law to parliament pertaining to this on the 8th of July 2022.

Natural gas – technical view

The uptrend in the price of natural gas from the 30th of December 2021 to the beginning of June this year (2022) has started to correct aggressively over the last few days.

The price correction is now testing the 50% retracement level of this trend. The 50% retracement level at 6575 and the 6450 level currently provide a support range for the price of natural gas. It is at this support range we are also seeing our stochastic oscillator suggesting the price to currently be in oversold territory.

Traders looking for long entry might need to exercise some patience waiting for a bullish price reversal at current levels, accompanied by a move out of oversold territory by our stochastic oscillator. Our preference would be to see a bullish price reversal firm enough to close above gap resistance (highlighted red) at 6990, before targeting a move back towards the 8130 resistance area.

In this scenario a close below the reversal low might be used as a stop-loss consideration for the trade. Should a bullish price reversal be supported by a move out of oversold territory and a close above gap resistance not manifest, and instead we see the price of natural gas closing below the 6450 level, the 61.8% retracement level at 5850 and 5680 become downside support targets respectively.