Greater demand for cheap American gas generated by European countries results in lower availability of gas in the country and a slower increase in inventories
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Import and export
The shale revolution in the USA made the United States not only give up coal in favor of gas, but also became a net exporter of this raw material. In 2021, gas exports reached record levels and it was the fifth year that the US exported this commodity than it imported it. American LNG was delivered primarily to Asian countries, but the tense situation in Europe led to a change in this situation. The US also supplies gas to Canada and Mexico via pipelines.
Why is it worth watching gas trading data in the United States? Greater demand for cheap American gas generated by European countries results in lower availability of gas in the country and a slower increase in inventories, which in turn leads to increasing uncertainty before the winter season. Gas prices in Europe are 7 times higher than in the USA and recently also in Asia. With the ongoing development of LNG infrastructure, the situation in the US may become even more tense and lead to a narrowing of the gap between gas prices in the US and Europe.
Since 2017, the United States has been a net exporter of natural gas, mainly due to the development of the LNG industry.
Source: EIA, XTB
Term curve
As with other commodities, the majority of trading in the natural gas market is done through futures contracts. Contracts for energy resources are divided into monthly contracts due to the different demand during the year. Due to seasonality, price differences within one year can be really big. In the case of natural gas, the highest prices are recorded in the heating period, while the lowest are observed just after the period of higher consumption.
Investors must keep in mind changes to the series of contracts, i.e. rolling, because the differences in the valuation of individual series can be really large. The difference resulting from contract changes is charged using swap points . It is worth noting the so-called “ Widowmaker spread ", i.e. the difference between the March and April series of contracts (end of the heating period). It can be really big, so when trading on the natural gas market, it is important to adjust the position size and the “ take profit” and “stop loss ” levels .
Natural gas forward curve
The forward curve on the natural gas market is the most specific of all commodities, which results from a clear seasonality. Futures contract valuations peak mainly in the autumn months, while the largest decrease in contract prices occurs between March and April. Source: Bloomberg, XTB Please note that information and research based on historical data or results do not guarantee future profits.
Positioning of speculators
Participants of the futures market are not only commercial investors, i.e. producers, distributors or recipients, but also professional investors. Of course, we can divide this group even more precisely, for example, between speculators and managers, but they are usually referred to as a whole group of non-commercial investors, or colloquially - speculators.
Speculative investors follow the forecasts of the price itself, i.e. they buy contracts expecting gas price increases and sell them when they expect market decreases. The difference between the number of buy and sell contracts usually shows the general sentiment in the natural gas market. The key in this case are the zones of extreme overbought and oversold, which on the xStation 5 platform are depicted by the gray areas of the COT (Commitment of Traders) indicator.
Extremely high and low COT levels can indicate potential turning points in the natural gas market. Source: xStation 5 Please note that information and research based on historical data or results do not guarantee future profits.
Gas price prospects in the long and short term
In recent years, gas has been a relatively volatile instrument, which was related to its wide availability and the possibility of diversification. The increase in prices on the commodity market related to the pandemic and then the war between Ukraine and Russia destroyed this order.
The US Energy Information Agency (EIA) operating at the Department of Energy (DOE) indicates that gas prices will remain at a high level throughout the upcoming heating period, and then the base will remain at a relatively high level in relation to previous averages. Gas prices in the US will most likely tend to catch up with the European price due to the high demand for gas in Europe. Nevertheless, in the foreseeable period, we will most likely experience a similar stabilization as in previous years, although the coming quarters will most likely see the upward trend on the gas market continue. Before the pandemic, the marginal cost for LNG supplies to Europe and Asia was calculated in the range of USD 5 to USD 8 per million British thermal units ( MMBtu ), so it can be expected that between these levels there is a potential low for gas prices, while the peak will depend on how much gas Europe will want to buy.
Natural gas price forecasts (USD/ MMBtu)
The short-term outlook for natural gas prices in the US points to maintaining high levels during the heating season, and then falling to a higher base than before the pandemic or post-pandemic period. Source: EIA, XTB Please note that information and research based on historical data or results do not guarantee future profits.
