Natural gas prices forecast: not yet in the oversold zone
- Natural gas price has been in a deep sell-off in the past few months.
- Liquified Natural Gas production is increasing at a rapid rate.
- Technical analysis points to more downside in the near term.
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Natural gas prices have had a difficult year amid rising concerns of demand and supply in the industry. It dropped to a low of $2.25, the lowest level in over 2 years, making it one of the worst-performing commodities this year.
Demand and supply dynamics
Natural gas prices jumped to a record high in 2022 following Russia’s invasion of Ukraine. According to TradingView, the price jumped to a high of $9.92 in August after Russia decided to cut supplies to Europe, its biggest market.
Prices have dropped by over 77% since then, which has helped drag Europe’s inflation figures. This decline was due to supply and demand dynamics. In terms of supply, the United States and other gas producers boosted their Liquified Natural Gas (LNG) exports to Europe.
The US is now building more LNG terminals to boost exports, especially to Europe. According to the Guardian, the US is building five terminals along the Gulf Coast. Other countries like Libya and Qatar are also boosting their production.
Demand, on the other hand, remains a bit weak, especially in Europe. For one, winter was warmer than expected, which reduced demand. Also, many European households and companies worked to reduce the volume of natural gas usage in their operations.
Therefore, natural gas prices are at a crossroad considering that demand is not easing any time soon since many companies are boosting their production. These supplies will help European countries fill their storage in the coming months.
Russia’s gas supplies to Europe will still be negligible. Analysts at Morgan Stanley believes that Russia will supply about 18 billion cubic meters lower than last year. As such, the bloc will need to plug about 29 billion cubic meters, mostly through LNG.
The upside for natural gas prices is that cheaper prices could lead to more demand, especially from Asian countries. This explains why analysts at Goldman Sachs believe could double in the coming months.
Natural gas prices forecast
Natural gas chart by TradingView
The daily chart shows that natural gas prices formed what looks like a double-top pattern at $9.925 in 2022. It then managed to move below the neckline level in July, October, and December. The prices then dropped below the key support level at $3.49 (December 2021) in January.
It remains below all moving averages while the Relative Strength Index (RSI) is at 36. This means that it is not yet oversold, which is a sign that prices could continue falling in the near term to below $2. Later this year, we could see prices rebound as countries start replenishing their reserves.
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