Natural Gas drops lower with Red Sea bottle neck getting defused

• Natural Gas slides by 4% in US trading.
• Companies and governments defuse Red Sea tensions overnight with several interventions. 
• The US Dollar steady after Greenback appreciates over 1% against the Japanese Yen. 

Natural Gas (XNG/USD) is completely reversing on Tuesday, giving up earlier gains from Monday and Friday. The full paring back of those gains comes as both shipping companies and several main governments have taken measures to detour or defuse tensions in the Red Sea after Houthi rebels again attacked a ship in the region, on Monday. Shipping companies such as Maerks, BP and MSCI have cancelled all travelling in the region and are deviating their fleet via other, longer, routes, while a UK-Canadian-France-US task force will patrol the area to secure safe passage. 

Meanwhile, the US Dollar (USD) is again a touch softer as Building Permits shrunk substantially. With the quick defusing of the tensions around the Red Sea for now, the US Dollar is not seeing substantial safe haven inflows. Although the Greenback is up over 1% against the Japanese Yen after a nonevent on its last Bank of Japan rate decision, those gains are matched by the Greenback being down near 1% against the UK’ s Pound Sterling. 

Natural Gas is trading at $2.32 per MMBtu at the time of writing.  

Natural Gas Market Movers: Supply secured

• The US Secretary of Defense Lloyd Austin, has set up a task force with the UK, Canada and France to create a naval task force to secure safe passage in the region.
• All big shipping transporters meanwhile have taken measures to avoid the Suez Canal and Red Sea passage.
•  European industrial demand remains subdued for the coming months, with no chunky declines in overall Gas storages in the EU.
• Norwegian based company Equinor has signed a deal with Germany to supply SEFE with 10 billion cubic metres of Natural Gas from January 1st 2024 until 2034. The amount accounts for roughly one third of German industrial demand. 
• Side remark in this situation is that the Baltic Dry Index, which tracks prices for shipping goods, could jump higher on the back these longer routes ships now have to take. Meanwhile, the promissed task force will be put in place at earliets mid-January as several involved countries in that same task force, will need to sign off on the project and pass it through their parliaments and congresses. This means the door is open for a small inflation push in prices, which might trickly trhough to the end consumer, the customer. 

Natural Gas Technical Analysis: This could be the start of the next inflation cycle

Natural Gas jumping above $2.50 saw red flags popping up all over European government desks, even stretching all the way up into Washington to the White House. It did not take long for the US Secretary of Defense Lloyd Austin to set up a task force that will monitor and patrol the Red Sea in order to fence off any other Houthi rebel attacks. Meanwhile shipping companies are rerouting their fleet, avoiding any supply issues and quickly defusing the sudden uptick in Gas prices. 

On the upside, Natural Gas could still try and return to the purple line near $2.60 as the first hurdle, should another front of bad geopolitical news occur. Next, the 200-day Simple Moving Average (SMA) at $2.74 will act as a resistance, which if breached will allow Gas prices to soar to $3.00 and the 100-day SMA nearby. 

With the dust quickly settling on this blip of macroeconomic tensions in the Red Sea, Gas prices are back retreating towards $2.20, and the low of June. Firmer support should come in near $2.10, April’s low, at the yellow supportive line. 

XNG/USD (Daily Chart)