Natural Gas prices subdued as proxy war risk gets priced out

• Natural Gas prices sink over 10% for the week.
• The US Dollar briefly surges on the back of hawkish Powell comments. 
• Natural Gas prices could sink lower as temperatures in Europe remain on the high end of the range.

Natural Gas prices have fallen more than 10% since the opening on Monday as concerns over supply following the Middle-East war fade and demand in Europe weakens on higher-than-usual temperatures. Markets have been following the narrative that the longer the tensions linger in the Middle East, the less probable it becomes that a proxy war would get underway. 

Meanwhile, the US Dollar (USD) is weaker on Friday after  its overnight stronger performance on the back of comments from US Federal Reserve Chairman Jerome Powell. Powell went against earlier comments from a few Fed members that the central bank has reached the end of its hiking cycle. Although the US Dollar Index (DXY) trades in the green, this week's gains are far from enough to erase losses from the prior one. 

Natural Gas is trading at $3.23 per MMBtu at the time of writing.  

Natural Gas market movers: Stalemate blocks Gas upticks

• Uganda Energy Minister Ruth Nankabirwa said the country signed a bilateral agreement with Tanzania for the construction of a natural gas import pipeline.
• The Pentagon has issued a statement on its military personnel in Syria and Iraq that came under attack four times since an overnight US airstrike on an arms depot.
• Turkey’s President Recep Tayyip Erdogan has urged Israel to free detained Palestinians in order to secure the release of civilian hostages held by Hamas.
• Around 18:00 GMT, the weekly Baker Hughes Gas Rig count will come out. Previous was at 118, posting a small uptick from the week before.

Natural Gas Technical Analysis: risk fading by the day

Natural Gas price has given back a substantial part of its uprising since the start of the Israeli-Palestinian war a few weeks ago. The risk premium has been all but erased by now. While Europe is facing elevated temperatures and with gas storages still fully filled up for the winter, more downturn should be priced into Natural Gas prices. 

Only one big catalyst could break the price ceiling near $3.64, and that is a proxy war in the Middle East. A risk premium would be priced in if  Iran, Saudi Arabia and other countries in the region started mobilising forces. In such a case, a quick sprint to $4.33, the high of 2023, would be expected. 

On the downside, the 55-day Simple Moving Average (SMA) is doing its work near $3.15 as the downturn appears to be losing traction near $3.20. In case it is unable to hold the recent sell-off, expect to sell the orange line, from the double top in August, to try and salvage the situation near $3.06. That will be the last line of defence before gas prices retreat below $3.

XNG/USD (Daily Chart)