Focus has shifted back to the natural gas market as concerns have increased about European gas supplies in the event of a Russian invasion of Ukraine. Not only does this have the scope to disrupt supplies that transit Ukraine, but European politicians are clearly worried that the Russian government could squeeze the EU but cutting off gas supplies in mid-winter, possibly entirely.
At time of writing it looks increasingly likely that Russia will launch some form of military action in Ukraine. This will lead to a violent reaction from commodities markets.
US gas futures on NYMEX have slumped since the big bull trade in the autumn. The market has shown some signs of picking up again in the last few days, but we believe it will be the ICE futures market where there could be the most price action.
Persistent worries over Europe’s gas supplies
But politicians are obviously worried about gas supplies: over the weekend it emerged that the US was in talks with Qatar, the biggest supplier of natural gas, about contingency measures if Russian gas gets shut off. The US is believed to be seeking some sort of long term guarantees from Qatar, especially as the emirate is starting to increase its gas production capacity.
Qatar currently has fixed, long term arrangements with Asia for its gas. The US is obviously keen to get some supplies earmarked for the European market. One of the big issues here is the fear that some European governments have of gas shortages in the winter, which is making them hesitant about providing military support to Ukraine.
The Russian threat to European gas supplies is not a figment of the imagination. Earlier this month, Fatih Birol, head of the International Energy Agency, complained that Russia has been manufacturing the gas crisis for its own ends. “We believe there are strong elements of tightness in the European gas market due to Russia’s behaviour,” he said. “Russia could increase deliveries to Europe by at least one third – that is the key message.”
Gas price will be a key market in a Ukrainian war
Gas is going to be one of the commodities most affected if there is fighting in Ukraine. The market was already looking tight going into January. Right now the gas market is still looking subdued, but has the scope to react quickly on news flow from Ukraine. Global Prime’s Natural Gas CFD, for example, has been fairly volatile in the last few trading sessions, fluctuating between $3.7 and $3.88.
On the ETF front, WisdomTree’s Natural Gas ETF is still up around 34% on its price last year, despite having dropped over the autumn months like most of the gas market.
Traders looking to exploit potential upside in the natural gas market have a number of options open to them, including trading futures, buying a gas ETF, or trading gas CFDs with a reputable broker. ETFs also have leveraged versions for qualifying investors who want to make use of x2 or x3 leverage in the market.
Note to readers: I will be appearing on the Pepperstone Talks How To Trader 2022 webinar tomorrow evening, where I will be discussing some of the themes we are seeing as of potential value for traders. Readers can register for free here.
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