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Gas lights up

Gas lights up

Updated

Like oil, natural gas is a product of decomposed organic matter, typically from ancient marine microorganisms, deposited over the past 550 million years. Often, gas and oil are neighbors, who are located deep under the ground. Because of that, their prices sometimes correlate. But for the last several weeks gas was skyrocketing at an enormous pace. It has gained more than 17% from August 18. What is the reason for such moves?

Latest news:

  • Hurricane Ida shut down oil and gas production.
  • OPEC+ meeting is expected to stall oil production increase.
  • Natural gas prices have risen sharply over the past week, with futures hitting two-year highs due to rising inflation and continued production cuts.

What affects the gas price?

Usually, there are a set of reasons for price to change:

  • The law of supply and demand regulates prices, as it does in nearly all commodities.
  • As a longer-term general trend, the supply of high-quality oil and gas is fixed while global demand is increasing with a rising population and economic growth.
  • There is a growing consensus that the world is facing a structural shift, driven by the energy transition and companies’ desire to reduce their carbon footprint.

As for now, demand isn’t showing any signs of slowing down. Between 2009 and 2020, global gas consumption surged by 30% as utilities and industries took advantage of booming output. Even in the covid-19 environment, experts are expecting the demand to rise even more in the next 10 years.

imgonline-com-ua-Resize-0MgbinYMDYA6.jpg

Source: https://www.iea.org/data-and-statistics/charts/global-natural-gas-demand-by-scenario-2010-2030

As for ecological reasons, companies and countries are implementing gas in their electrical supplies. The shift to natural gas can be done relatively quickly and cheaply while having a significant impact on lowering emissions. Natural gas is the cleanest burning fossil fuel and emits almost 50% less CO2 than coal. Meanwhile, non-fossil-fuel alternatives such as wind and solar are at a relatively early stage to produce enough energy and offer a cheap deployment.

Gas’ bright future

Already, there are signs around the world that supplies will fall short:

  • Beyond a massive expansion in Qatar, few new liquified natural gas (LNG) export projects have been started since 2020.
  • Government is uncertain about emissions-reducing policies, thus, producers have been less willing to sign long-term supply deals.
  • Key pipeline projects struggle to move forward, and drillers are under pressure from investors, that want to avoid a surplus of gas.

 Even if the prices will rise even higher over the next decade, it won’t be enough to drastically reduce demand for the fuel. All we can say for now is that gas is increasingly less dependent on oil prices and this trend is going to continue.

Technical analysis

As for the chart, US natural gas is looking overbought, with divergence on the RSI and Fibonacci’s double pivotal levels on its way. After a retracement to the $4 level, we can consider buying some XNG with a mid-term target of $5 and higher.

XNG/USD daily chart

Support: 4.080; 3.820

Resistance: 4.480; 5.100

XNGUSDDaily.png

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