Natural gas prices edge lower in thin US holiday trading

Natural gas experienced a slight decline during European trading hours on Monday, September 4, due to the Labor Day closure in the U.S. market. However, ongoing pressure on the European gas supply meant the drops were within market expectations. Over the past weekend, the supply from three Norwegian gas fields was disrupted, resulting in Norwegian gas exports to the EU dropping to their lowest levels since 2015.

Meanwhile, the U.S. Dollar is exhibiting mixed trading patterns following the release of the U.S. jobs report last Friday, which initially prompted a reaction but then reversed course about an hour later as the markets absorbed the report's details, highlighting the enduring strength of the labor market.

With the U.S. markets closed due to the Labor Day holiday, substantial movements were not observed in either natural gas futures or the greenback.

Natural gas prices saw a surge in the past week, as did crude oil futures — continuous contracts for Brent and West Texas Intermediate (WTI) crude grew by 6% and close to 7.5% over the past 5 days, according to Marketwatch data. At the time of writing, natural gas is priced at $2.65 per million British thermal units (MMBtu), down close to 4% in day-to-day trading.

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Natural gas price dynamics: Norway supply issues, Australia strikes have impact

During the European trading session, both European and US gas futures declined. Traders found themselves in a dilemma as they weighed supply concerns stemming from supply issues in Norway, the potential for strikes in Australia, and decreasing demand in Europe, given the near-full gas stockpiles.

There are also uncertainties surrounding China's global recovery, raising doubts about whether China will ever return to its pre-COVID level of LNG demand. Multiple investment banks, such as Morgan Stanley, J.P. Morgan, and Barclays, have downgraded their economic outlook for China’s GDP growth in the past several weeks, projecting it to come in lower than the government-predicted 5%. The banks’ China GDP growth forecasts for 2023 ranged from 4.5% to 4.8%, with next years’ forecasts coming in even lower.

European fuel reserves have reached a capacity level exceeding 90%, marking the highest recorded level for this period of the year. This surpasses the European Union's target of achieving such storage levels by November 1st.

Survey data released last Wednesday revealed that Germany experienced its most significant drop in business activity in over three years in August, stoking fears that Europe's largest economy may be heading towards another recession.

The preliminary reading of the Purchasing Managers' Index (PMI) for the country, which monitors both manufacturing and service sector activities, dropped to 44.7 in August, down from 48.5 in July, according to data from S&P Global and the Hamburg Commercial Bank. This marks the lowest reading since May 2020, when the country began slowly easing strict pandemic restrictions. A PMI reading below 50 signifies a contraction in economic activity.

The risk of strikes in Australia also remains significant, which could adversely affect the supply of natural gas in the future. On Monday, Chevron Australia initiated mediation talks with employees at its major LNG facilities in the country, as per a Reuters report. The talks are aimed at averting the strikes, which are scheduled for Thursday should the parties fail to reach a deal.

Moreover, additional unplanned production disruptions in Norway are anticipated due to unforeseen maintenance at the Aasta Hansteen field. The Dvalin field is also affected, and planned operations at Oseberg are being extended due to unexpected delays. The primary Troll gas field in Norway is reporting delays in restarting production, with resumption now expected no earlier than September 8.

Natural gas price predictions: $3 in sight

Despite the European bloc having its gas reserves filled to over 90%, it appears that additional measures may be necessary to meet any further demands. Additional production delays in Norway or unexpected strikes in Australia could have a notable impact on the commodity’s price in both European and U.S. markets.

In a technical analysis posted on FXStreet, former ING trader Filip Lagaart noted to keep an eye out for the $3 price level on the upside, with “ample support” provided around the $2.71 level on the downside.

In its most recent forecast dated August 8, the U.S. Energy Information Administration (EIA) listed its anticipated natural gas price average at 2.58 USD/MMBtu throughout 2023. The agency posted the commodity’s expected price average in 2024 at 3.22 USD/MMBtu.

Data aggregator TradingEconomics posted a US natural gas price prediction of 2.93 USD/MMBtu by the end of this quarter, based on the platform’s global macro models and analysts' expectations. The website’s 12-month natural gas price forecast saw the commodity potentially trading at 3.51 USD/MMBtu by September 2024.

The platform’s European natural gas price prediction for the end of this quarter totaled 38.77 EUR/MWh (megawatt-hour), with a 12-month potential price of 50.02 EUR/MWh.

When considering natural gas futures for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.