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Natural gas futures markets seem to be the place to be at the moment for the active commodities trader. Futures prices are up over 81% YTD and over 14% over the last week.

Although natural gas spot prices came off slightly in early August following a rally as the global economy began its recovery from the Covid-19 crisis, they have surged again in recent days, beating oil in terms of short term gains. Right behind them, though, are gasoline prices, which were also up over 13% over one week. Heating oil was up just over 11%. Overall it was an exciting week to be in energy markets.

“The past week has seen a sharp rise in the price of oil and gas, as well as companies that operate within the industry,” said Naeem Aslam, Chief Market Analyst, AvaTrade. “For example, Vallourec saw an increase this week following the successful installation of the first ever 3D printed waterbushing, a safety-critical component in the oil and gas drilling industry, in the North Sea. The general increase across the industry could be attributed to concerns over tight supplies and the disruption caused by Hurricane Ida to oil and gas operations in the Gulf of Mexico.”

The hurricane seems to have been a major contributory factor to the short term price surge this week and last week. This has made gas operations in the Gulf of Mexico harder and put pressure on US prices. Similar to last year, analysts are now looking at the weather forecasts for the hurricane season as this could play havoc with the energy industry. Two more potential hurricanes are evolving in the Atlantic at the moment and hard core gas traders will be keeping an eye on the weather.


All eyes on the Atlantic weather this month

The impact of Ida on natural gas operations is not to be underestimated. Quite a bit of production was still offline mid-week. The USS Bureau of Safety and Environmental Enforcement estimated 83% of Gulf of Mexico gas production was shut in with substantial damage inflicted on offshore oil and gas platforms. Offshore production from the Gulf accounts for 5% of USS dry output, according to the Energy Information Agency.

We also saw European natural gas prices in upward mood, this time driven by uncertainty over just how reliable Russian supplies will be this winter. Russia is currently working to complete the Nord Stream 2 gas pipeline to Germany which will be instrumental in providing LNG to the Central European market.

European liquid natural gas market is tight

European supplies of LNG are seen as being quite tight at the moment; European markets are going to continue to tap the US export market and European gas buyers are also putting pressure on traditional Asian supplies. We don’t see this changing soon as we move into the colder weather in the northern hemisphere.

From a technical analysis perspective, natural gas futures are anticipated to slide in the next few trading sessions, bar any further weather impacts.

The surge is gas prices was also reflected in the ETF market: the United States Natural Gas Fund (NYSE:UNG) is up 66% YTD. Over the one month period it is up 11%.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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