Natural gas price (XNG/USD) extended its rally for the fifth consecutive day on Tuesday, reaching a two-week high of $2.82 amid strong demand and supply concerns. The energy commodity shrugged off the US dollar’s rebound and the easing of Hurricane Ida’s impact on the Gulf of Mexico.
Demand Outlook Supports Natural Gas Price
One of the main drivers of natural gas price is the demand outlook, which has improved in recent weeks due to the weather forecasts and the economic recovery. According to the US National Weather Service, above-normal temperatures are expected in most parts of the US in the next 6-10 days, which could boost the cooling demand for natural gas. Additionally, the reopening of businesses and industries after the pandemic-induced lockdowns has increased the consumption of natural gas for power generation and industrial use.
The demand for natural gas is also strong in other parts of the world, especially in Asia and Europe, where the prices have surged to record highs. The tightness in the global LNG market has been exacerbated by the low inventories, the maintenance outages, and the geopolitical tensions. As a result, the US LNG exports have been rising steadily, reaching a new high of 11.9 billion cubic feet per day (bcfd) in July, according to the US Energy Information Administration (EIA).
Supply Concerns Add to Natural Gas Price Strength
Another factor that has supported natural gas price is the supply concerns, which have been triggered by several events in recent weeks. The most notable one is Hurricane Ida, which hit the Gulf of Mexico on August 29 and caused widespread damage to the oil and gas infrastructure. According to the Bureau of Safety and Environmental Enforcement (BSEE), as of August 30, about 94% of the natural gas production in the Gulf was shut-in, equivalent to 1.8 bcfd.
Although some of the production has resumed since then, it is still far from normal levels. The BSEE reported that as of August 31, about 78% of the natural gas output in the Gulf remained offline, equivalent to 1.4 bcfd. Moreover, some of the pipelines and processing plants that transport and process natural gas from the Gulf have also been affected by the storm, creating bottlenecks and delays in the supply chain.
Another supply concern that has boosted natural gas price is the possibility of a strike at Chevron’s LNG export plants in Australia. The Australian Workers’ Union (AWU) has threatened to launch a strike action on September 1 if Chevron does not agree to its demands for better wages and conditions. Chevron operates two LNG projects in Australia, Gorgon and Wheatstone, which have a combined capacity of 24.9 million tonnes per year (mtpa). A strike could disrupt the LNG exports from Australia, which is one of the largest suppliers to Asia.
US Dollar Rebound Fails to Dent Natural Gas Price
Despite these bullish factors, natural gas price faced some headwinds on Tuesday from the US dollar’s rebound. The greenback recovered some of its losses from Monday, when it fell to a one-month low against a basket of major currencies. The US dollar was supported by the upbeat consumer confidence data from the Conference Board, which showed that consumer confidence rose to 113.8 in August from 125.1 in July, beating market expectations.
A stronger US dollar tends to weigh on natural gas price, as it makes it more expensive for foreign buyers. However, natural gas price managed to overcome this pressure and maintain its upward momentum, as the demand and supply factors outweighed the currency effect.
Natural Gas Price Technical Analysis
Natural gas price has broken above a descending trendline that was capping its upside since August 16, when it reached a seven-year high of $2.96. The breakout signals a bullish continuation of the uptrend that started in late June. The price is also trading above its 20-day and 50-day moving averages (MAs), which are acting as dynamic support levels.
The immediate resistance for natural gas price is at $2.82, which is the high of August 30. A clear break above this level could open the door for further gains towards $2.86, which is the high of August 16. Above that level, the next target is at $2.96, which is the multi-year high.
On the downside, if natural gas price fails to sustain above $2.82 and falls below $2.80, it could face some selling pressure towards $2.76, which is the low of August 30 and coincides with the 20-day MA. A break below this level could trigger a deeper correction towards $2.70, which is a horizontal support level and also aligns with the 50-day MA.