Natural gas prices have recently experienced a fade correction in response to a stronger U.S. dollar and concerns of economic recession. However, an extension of the U.S. tax exemption on gas fuels and geopolitical tensions have helped to stabilize prices.
The U.S. tax credit and geopolitical troubles have enabled natural gas to post its most significant daily gains in a week. However, fears of an economic slowdown in the U.S., combined with a stronger dollar, have put pressure on energy prices in recent days. The U.S. Dollar Index (DXY) has rebounded from a two-month low to 102.00, rising 0.12% intraday. Recession concerns have been fueled by consecutive weak U.S. employment numbers, raising fears of a slowdown in the global economy and an associated contagion risk, which have weighed on energy demand and natural gas prices.
In contrast, recent talks between House of Representatives Speaker Kevin McCarthy and Taiwanese President Tsai Ing-Wen have renewed Sino-American tensions. Additionally, North Korea has accused the U.S. and South Korea of escalating tensions to the brink of nuclear war through their joint military drills, vowing to respond with “offensive action,” according to Reuters.
The U.S. Senate has also extended a decade-old tax exemption on natural gas, favoring more demand for natural gas and supporting prices. S&P 500 Futures have dropped for the third consecutive day, while benchmark U.S. Treasury bond yields remain sluggish around multi-day lows.
In the coming weeks, weekly natural gas storage change data from the U.S. Energy Information Administration (EIA), previously at -47B, could direct natural gas price movements. However, more significant attention should be given to headlines surrounding China and the secondary U.S. employment data.
From a technical analysis perspective, natural gas buyers remain off the table until they witness a clear break of the 50-day moving average (50-DMA), currently around $2.51. On the other hand, bears remain cautious beyond the double-bottom near $2.13.
Overall, the natural gas market is responding to a mix of factors, including a stronger U.S. dollar, economic recession concerns, geopolitical tensions, and an extension of the U.S. tax exemption on gas fuels. While some of these factors have weighed on natural gas prices, others have helped to stabilize them. In the near term, weekly natural gas storage change data and secondary U.S. employment data could impact price movements. However, broader trends regarding the global economy and geopolitical tensions will likely continue to shape the market’s dynamics.