Home Sports EU storage progress, warm weather deal affects US and EU prices

EU storage progress, warm weather deal affects US and EU prices


Natural gas, EU price cap, warm weather, technical forecasts – talking points

  • Natural gas prices in the United States and Europe fell sharply on Monday
  • Warm temperatures and pre-planned stockpiles take the worry out of winter
  • The technical outlook suffered a key setback on Monday as prices fell

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Natural gas prices in Europe and the United States fell sharply on Monday, helping ease concerns about the commodity heading into the winter months. A theme consisting of warmer-than-usual weather and an early inventory build in the US and EU helped cool speculative pressure on commodities at a critical time.

The European Union appears ready to move forward with a “dynamic” cap on LNG prices, according to a draft proposal reported by Reuters. The Agency for the Cooperation of Energy Regulators (ACER) will be tasked with implementing the price cap. ACER’s mandate will focus on prices in the Dutch Transfer Mechanism (TFF), the EU’s virtual natural gas pricing point. The exact effectiveness of the price cap is up for debate, but for now the market seems to be viewing it as a bearish price move.

However, EU governments must reach a consensus agreement on the move, which could be opposed by Germany. Meanwhile, the bloc has made better-than-expected progress in building stockpiles, with AGSI-GIE data showing that as of October 15, the EU’s storage level exceeded 92%. So far, October has been a mild month in terms of temperatures across much of Europe – a welcome development in the energy situation. If the weather remains mild, it should keep prices low, even if the EU stumbles over price cap measures.

Prices in the US are falling amid moderate temperatures. The National Weather Service’s 8-14 day temperature forecast shows a high chance of above-average temperatures in the eastern half of the United States. This should reduce the demand for gas. What’s more, the NWS sees above-normal precipitation in the western U.S., which would help with hydroelectric power supplies.

The map description is created automatically

Source: cpc.ncep.noaa.gov

Another notable development of the market took place in Africa, where the company Nigeria LNG Ltd. declared a force majeure due to flooding at the Bonney Island LNG plant. The company purchases more than 20 million tons of liquefied natural gas (LNG) per year. However, the extent of the disruption caused by the force majeure is not yet fully understood, although the company said it is working to limit the disruption. The market doesn’t appear to be fazed, but a prolonged outage could push prices higher if the likelihood of a prolonged outage increases.

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Technical forecast of natural gas

Natural gas prices fell below several key technical barriers on Monday, significantly weakening its technical position and threatening further losses. Monday’s price action left a gap open after a 7.04% daily drop that dipped below the 200-day simple moving average (SMA) and trendline from December 2021. Meanwhile, the MACD is tracking a decline near its weakest levels since early July. A move lower could follow, with 78.6% Fibonacci and the 5 psychological level on the table as possible targets.

Daily Natural Gas Chart

Chart, line chart Description is generated automatically

The chart is created using TradingView

— Posted by Thomas Westwater, DailyFX.com analyst

To contact Thomas, use the comment section below or @FxWestwater on Twitter


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