Market Overview

US NatGas price strives to rewrite 2008 highs above $13.5

The gas story is in no hurry to leave the news headlines, and prices for the energy sector are behaving accordingly. In Tuesday’s trading in Europe, prices returned to the psychologically crucial round level of $2,000 per 1,000 cubic metres – around the December peak and the highest since mid-March.

Gas on the trading floor in the Netherlands closed above the current level of 2033 for only three days in early March. But then, due to logistical difficulties, gas prices in the US moved in a counter-phase.

Now that the USA is heralded as the world’s leading LNG exporter, gas prices in Europe and the USA are moving in the same direction. As a result, Natural Gas prices have risen by more than 7% in New York, exceeding $9.1 per 1,000 Btu, close to the highs of early June.

While the geopolitical situation has changed little in the meantime, and oil and gasoline prices have retreated significantly from the highs of early June, the nearest gas futures price has risen by more than 70% in the past 20 days.

Despite a fivefold increase from the lows of two years ago and proximity to the year’s extremes, US gas has ample upside potential. The price was above $13.5 in mid-2008, and the supply situation is much worse now that relatively wealthy Europe needs gas. In contrast, at that time, developing countries were pulling prices up against the recession-stricken US and UK.

Short-term price dynamics are determined more by uncertainty about supplies from Russia and the ability to replace them with other countries than by a persistent link to the economic growth rate.

The situation leads us to the view that we will see more sharp market movements soon, related both to technical factors (short squeeze) and sentiment as well as to attempts by consumer country politicians to disrupt the one-way move in this market.

July appears to be the start of the sharpest wave of strengthening in gas prices, with the potential target being the $14 area – above the 2008 highs – where the price could end up in the next two months.

The FxPro AnalystTeam

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