Natural gas: Will Russia's supply cuts lead to new price highs?

The price of natural gas has been going up and down like a roller coaster over the past month.

After suffering a severe 45% drop between June 8 and early July, US Henry Hub prices have risen nearly 80% since July 7, recouping all the losses.

What's going on in the natural gas market?

Russia is squeezing gas supplies to Europe via the NordStream (NS1) pipeline, pushing EU Dutch TTF prices above €190/MWh, approaching the record high reached in March.

Gazprom , the Russian energy giant, has announced that it will reduce NS1 daily flow to 33 million cubic metres, or about 20% of its capacity, citing problems with the pipeline's turbines. This puts at risk the region's goal of filling 80% of its storage capacity before winter.

According to recent Bruegel calculations, Europe may run out of gas in storage this winter if demand is not reduced. Such supply concerns prompted EU members to sign an agreement to cut their gas consumption by 15% over the next six months.

The worsening of the European gas crisis prompted a rush for supplies from other major producers, such as gas LNG from the United States and JKM from Asia. These markets are near full capacity for gas exports to Europe, so prices are rising and we may not have seen the peak yet.

From a technical standpoint, price momentum is pushing upward. Nine of the most recent ten sessions ended in the green, a streak that hadn't been seen since late March/early April 2022.

The RSI is now approaching overbought territory (70), but it may still have room to decisively break through this level.

The June bearish divergence thesis, based on rising prices/falling RSI , is now invalidated, showing that fundamental factors dominate technical considerations in the current natural gas market.


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