The Russia and Ukraine crisis will cause a strain on Natural Gas prices. This analysis will explain its effects.
Global natural gas consumption rebounded by around 4.6% in 2021. This strong growth demand was led by an economic recovery following the 2020s lockdowns and a succession of extreme weather events. Supply could not keep up. Along with unexpected outages, this led to a tight market and steep price increases. The year closed with record high spot prices in Europe and Asia, as natural gas supplies remained very tight. Beginning with the Russia/Ukraine crisis from the end of January till today natural gas spot prices have seen a rapid rise. By almost 35%, from around 3.631 to 4.902.
This has been solely due to a fear of an invasion into Ukraine. The reason is simple, Europe heavily relies on Russia for natural gas. Around 40%. A third of the gas comes from pipelines underneath Ukraine, Germany is trying to circumvent this issue with Nord Pipeline 2. But this is still in the making and the US have said that they would stop this pipeline if there were any invasion into Ukraine. So, an invasion into Ukraine will be a good buying opportunity for Natural Gas.
However, there's a problem.
If the markets, see a problem looming in the commodities sector they almost always price in the problem from the get-go. So, I suspect many large banks, traders are ready for an invasion and gas producers have already got a supply of gas that can be shipped, if need be, to circumvent the gas supply shock that would occur if Russia invaded Ukraine. Also, A senior Biden administration official said last Tuesday that the US has held talks with major gas producers in North Africa, the Middle East and Asia, as well as domestically about their willingness to “temporarily surge” their gas output to meet any supply shortages. This would lead to a medium-term fulfilment of gas prices and the increase may not be as pronounced as one may imagine. I still believe there will be a large short-term spike in the prices, but this would not sustain for very long and eventually, the price will level out. Only if the supply shortages are met. If not, then the prices may continue to rise. So, if an invasion comes then a spike in natural gas and oil prices will probably occur. After that, I will wait and see how the supply shortage is managed and how that will affect prices.
In 1991 the spot price of natural gas begins around 1.649, the highest price was around 16.470 near the end of 2005. But, for the largest period, it's been between 1.649 and 6.162. In the last decade, the spot price has only on three occasions reached that amount.
The purple indicator second to the bottom is the RSI, it measures overbought and oversold situations. Since natural gas is a commodity, I’m not going to focus largely on these indicators apart from the CCI (commodity channel index). Which is designed for assets such as natural gas. The RSI has seen overbought levels which have been represented by the purple boxes on the chart. Most of these events have been geopolitical and not nearly related to technical stuff. So, the large increase in the RSI which would inevitably come in the event of an invasion should be mostly ignored. Only recognize that the increase is related to the event and when the RSI starts to cool off it could be a sign to sell.
The blue indicator is the CCI. This indicator is used to signal overbought scenarios as well. Since it works by comparing the current price by the average price over some time. The times when the CCI has been overbought are presented by the blue circles on the graph. As with the RSI, I would use this indicator only to see a sell, not a buy. Since the indicator lags in time, the event and spike in price will come before it is shown on the indicator and could cause a delay in action which could result in a bad timing in position.
The red lines represent all-time lows and highs. The orange lines are recent highs and lows based on the last decade. But the important lines are the black ones. These represent an area of resistance for the price going back to 2002. The price has stalled and found support and resistance in this region. So, if one wants to have a long-term position in natural gas, I will use this to measure the level of support of the resistance. These lines would not cause any issues in an event of an invasion since the price would probably spike through and ignore the resistance. But when the price cools down, you can expect it to find this region as a support level and that could signal a sell.
The blue arrow is my prediction in the event of an invasion. The highest peak of the arrow is where I see some form of a bad scenario working out. But if the US and Europe make sure the gas supply is sufficient, I do expect a rise in the price but not to the arrowhead. Only between the top black line to the orange line. Which is the green rectangle. The growth of the green rectangle represents a rise of 40% which, is more than enough to make a decent profit.
Global natural gas consumption rebounded by around 4.6% in 2021. This strong growth demand was led by an economic recovery following the 2020s lockdowns and a succession of extreme weather events. Supply could not keep up. Along with unexpected outages, this led to a tight market and steep price increases. The year closed with record high spot prices in Europe and Asia, as natural gas supplies remained very tight. Beginning with the Russia/Ukraine crisis from the end of January till today natural gas spot prices have seen a rapid rise. By almost 35%, from around 3.631 to 4.902.
This has been solely due to a fear of an invasion into Ukraine. The reason is simple, Europe heavily relies on Russia for natural gas. Around 40%. A third of the gas comes from pipelines underneath Ukraine, Germany is trying to circumvent this issue with Nord Pipeline 2. But this is still in the making and the US have said that they would stop this pipeline if there were any invasion into Ukraine. So, an invasion into Ukraine will be a good buying opportunity for Natural Gas.
However, there's a problem.
If the markets, see a problem looming in the commodities sector they almost always price in the problem from the get-go. So, I suspect many large banks, traders are ready for an invasion and gas producers have already got a supply of gas that can be shipped, if need be, to circumvent the gas supply shock that would occur if Russia invaded Ukraine. Also, A senior Biden administration official said last Tuesday that the US has held talks with major gas producers in North Africa, the Middle East and Asia, as well as domestically about their willingness to “temporarily surge” their gas output to meet any supply shortages. This would lead to a medium-term fulfilment of gas prices and the increase may not be as pronounced as one may imagine. I still believe there will be a large short-term spike in the prices, but this would not sustain for very long and eventually, the price will level out. Only if the supply shortages are met. If not, then the prices may continue to rise. So, if an invasion comes then a spike in natural gas and oil prices will probably occur. After that, I will wait and see how the supply shortage is managed and how that will affect prices.
In 1991 the spot price of natural gas begins around 1.649, the highest price was around 16.470 near the end of 2005. But, for the largest period, it's been between 1.649 and 6.162. In the last decade, the spot price has only on three occasions reached that amount.
The purple indicator second to the bottom is the RSI, it measures overbought and oversold situations. Since natural gas is a commodity, I’m not going to focus largely on these indicators apart from the CCI (commodity channel index). Which is designed for assets such as natural gas. The RSI has seen overbought levels which have been represented by the purple boxes on the chart. Most of these events have been geopolitical and not nearly related to technical stuff. So, the large increase in the RSI which would inevitably come in the event of an invasion should be mostly ignored. Only recognize that the increase is related to the event and when the RSI starts to cool off it could be a sign to sell.
The blue indicator is the CCI. This indicator is used to signal overbought scenarios as well. Since it works by comparing the current price by the average price over some time. The times when the CCI has been overbought are presented by the blue circles on the graph. As with the RSI, I would use this indicator only to see a sell, not a buy. Since the indicator lags in time, the event and spike in price will come before it is shown on the indicator and could cause a delay in action which could result in a bad timing in position.
The red lines represent all-time lows and highs. The orange lines are recent highs and lows based on the last decade. But the important lines are the black ones. These represent an area of resistance for the price going back to 2002. The price has stalled and found support and resistance in this region. So, if one wants to have a long-term position in natural gas, I will use this to measure the level of support of the resistance. These lines would not cause any issues in an event of an invasion since the price would probably spike through and ignore the resistance. But when the price cools down, you can expect it to find this region as a support level and that could signal a sell.
The blue arrow is my prediction in the event of an invasion. The highest peak of the arrow is where I see some form of a bad scenario working out. But if the US and Europe make sure the gas supply is sufficient, I do expect a rise in the price but not to the arrowhead. Only between the top black line to the orange line. Which is the green rectangle. The growth of the green rectangle represents a rise of 40% which, is more than enough to make a decent profit.