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ICE Futures Europe Dutch TTF Natural Gas FuturesICE Futures Europe Dutch TTF Natural Gas FuturesICE Futures Europe Dutch TTF Natural Gas Futures

ICE Futures Europe Dutch TTF Natural Gas Futures

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Natural Gas from Pipelines to PortfoliosNatural gas was once considered a byproduct of oil production. It is now becoming increasingly important as one of the cleanest burning fossil fuels and a key piece of the clean energy transition. Today, it forms the backbone of global energy production. This paper delves into the supply and demand factors affecting natural gas prices and proposes a long position in Henry Hub Natural Gas Futures (NG1!) to harness gains from seasonal price trends with an entry of 2.484 with a target of 3.099 and a stop loss at 2.172 delivering risk/reward ratio of 2x. Natural Gas Supply and Demand Supply Largest producers and exporters of Natural Gas are US, Russia, Iran, China, Canada, Qatar, Australia, Norway, and Saudi Arabia. The standout in the list is Russia. Following the conflict in Ukraine, gas exports from Russia plummeted 58% in 2022. This led to price shocks in EU natural gas (TTF). US supply is unable to adequately bridge this deficit as transporting natural gas using ships requires converting it to Liquified Natural Gas (LNG) and using special refrigerated vessels which is not economical for large quantities of natural gas. This is also why the spread between EU and US natural gas is much wider than EU and US oil. Notably, US shale reserves have a high concentration of natural gas. Along with newly developed fracking techniques, this has led to increasing gas production in the US. Moreover, natural gas is also obtained in the process of oil extraction, which means gas production is linked to oil production. This has interesting ramifications when looking at present supply. Despite low natural gas prices over the past few months, production in the US has remained high as a result of high oil production. Similarly, higher prices do not readily translate to higher production. This suggests that Natural Gas price-supply relationship is inelastic. Demand Demand for Natural Gas comes from: • Energy Production – Natural Gas is used in power plants to generate electricity. Natural Gas electricity production has been rising over the last decade as it replaces Coal. Notably, manufacturers using natural gas as an energy source can switch to other energy sources during price spike, which provides some elasticity to demand. • Commercial and Residential Heating – Natural Gas is used for heating homes in winter. This can lead to a seasonal demand during winter months in the Northern Hemisphere. • Industrial Use – Natural Gas is used as a raw material for industrial products such as plastics, ammonia, and methanol. Natural gas demand is heavily affected by weather. Unusually warm summers in the Northern Hemisphere drive higher energy usage from air conditioners while colder winters drive higher demand for heating. Inventories Gas can be injected into storage facilities and stored for later use. These inventory levels play a major role in balancing supply-demand. Summer months (April-October) are referred to as injection periods while winter months (November-March) are withdrawal periods. Inventory levels help even out the surge in winter demand. However, natural gas is much harder to store than oil as it is less dense. This means the inventory effect is not as apparent which explains the larger seasonal variation in natural gas prices as compared to oil prices. Seasonality in Natural Gas Prices Seasonal price action of Natural Gas shows two distinct price rallies. A large rally during winter in the US and EU driven by surge in supply for heating in winters, during this period, prices peak in early-December before declining. The other, smaller spike is during summers in the US and EU when demand for electricity rises, during this period, prices peak in early-June before declining. Further, prices show the highest deviation from the seasonal trend in late-September. Over the past five years, the winter rally has become wider, with prices staying elevated from August to early-December. Additionally, seasonal trend points to a price appreciation of +11% between September and December. However, investors should note that past seasonal trends are not representative of current or future market performance. Henry Hub Futures Henry Hub is the most prominent gas trading hub in the world. It is located at the intersection of major on-shore and off-shore production regions and connected by an extensive pipeline network. This is also where US natural gas exports are dispatched. CME’s benchmark Natural Gas futures (NG) deliver to Henry Hub and is the largest gas futures contract in the world. Other notable Natural Gas futures contracts are TTF (EU) and JKM (Asia). Futures from both regions are also available for trading on CME. Asset Managers are Bullish Commercial traders are heavily net short on Natural Gas futures, short positioning in July was at its highest level since 2021 but has since reduced. Overall, net short commercial positioning points to bullish sentiment. Asset managers have switched positioning in Natural Gas futures from net short to net long since May. Last week net long positioning reached its highest level since May 2022. Options markets OI points to a neutral market view on natural gas with Put/Call ratio close to 1. Options P/C has stayed close to 1 for the past 3 months. At the same time, Implied Volatility on Natural Gas options has been rising in August. A rally last week failed to break past a key support level but vols remain elevated suggesting that price may retest that level again. Henry Hub Gas Dynamics with European Gas Last week, EU Natural Gas futures (TTF1!) spiked by almost 28% due to a strike at Australia’s second largest LNG plant, still the rally soon retraced almost entirely. LNG supply disruption, especially at the key transition to the winter season can lead to volatility spikes. Though, EU gas inventories are 90% full, supply disruptions like this can still have a major effect on gas prices but especially on volatility. Over the past few years, higher flexibility and capacity in the global LNG supply chain has led to the various global natural gas benchmarks tracking each other more closely. This means that Henry Hub natural gas futures are exposed not just to US and Canada Natural Gas production but also to disruptions in global supply. However, the effect is comparatively limited due to ample supply in the US. This can be seen in the price action of Henry Hub natural gas futures which rose by 6% on the same day. Recent Trend in Natural Gas Inventories As per the EIA, Natural Gas supply fell 0.1% WoW last week. At the same time demand rose by 0.3% WoW. Note that working natural gas in underground storage has started to flatten over the past 4 weeks, rising by just 94 billion cubic feet (BCf) compared to the 5Y average increase of 140 BCf during the same period. Still, inventory levels are close to the top of their 5-year maximum, elevated by high US gas production during the summer driven by higher oil production. EIA forecasts that the depletion season will end with inventories 7% higher than their 5-year average. EIA expects production to remain flat for the remainder of the year, so watching weekly consumption reports could point to early indicators of seasonal inventory depletion. However, due to elevated inventory levels, the seasonal effect may not be as strong as prior years. In a longer-term trend, gas rigs in the US have started to decline this year after surging over the past year. This will likely lead to lower production over the next year. Trade Setup With options markets pointing bullish and seasonal trends suggesting price appreciation during this period, a long position in Natural Gas futures expiring in October (NGV) allows investors to benefit from an increase in Natural Gas prices. Each contract of CME Henry Hub Natural Gas Futures provide exposure to 10,000 MMBtu of Natural Gas while the October contract has maintenance margin of USD 5,070 for a long position. A USD 0.001 MMBtu change in quoted price per MMBtu leads to a PnL change of USD 10 in one Henry Hub Natural Gas Futures. Entry: 2.484 Target: 3.099 Stop Loss: 2.172 Profit at Target: USD 6,150 Loss at Stop: USD 3,120 Reward/Risk: 2x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Editors' picks
NYMEX:NG1!Long
by mintdotfinance
17
Natural Gas hit the support zone, getting ready to hit new high?Natural Gas has taken multiple times support near the marked trend line on chart. NG is making higher highs & higher lows on chart since Apr-2023. Is NG getting ready for hitting new highs??? Is Natural Gas demand is likely to increase in the winter season? Please share your views. Let us work & win together. Disclosure: I have initiated long positions in NG as risk to reward is quite favorable. I am a full time professional trader & investor and sharing my inputs only for educational purpose.
MCX:NATURALGAS1!Long
by manishmgupta
2
Long GAS | Potential Double Bottom formation at play _target $3A famous trader called this the "Widow Maker" due to how volatile Natural gas tends to be. The weekly closed on 0% change, showing some base formation. A double bottom pattern is a classic technical analysis charting formation that represents a major change in trend and a momentum reversal from a prior down move in market trading. The 1st target is at the resistance line and offers swing traders a nice 36% before confirmation of setup. Disclaimer| Position open
NYMEX:NG1!Long
by N_I_G
1
Australian LNG Producers in High-Stakes Talks to Avert Strike...Australian LNG Producers in High-Stakes Talks to Avert Strike Amidst Climbing Energy Prices Two prominent Australian liquefied natural gas (LNG) producers find themselves embroiled in crucial negotiations with unions, aiming to thwart a potential strike that could cast a shadow over global energy supplies. The looming specter of industrial action across three strategic locations in Western Australia has reverberated through the energy market, prompting a startling 40% surge in European natural gas prices overnight due to mounting supply concerns. These three critical sites, jointly owned by Australia's Woodside Energy and American firm Chevron, collectively contribute 10% of the world's supply while also constituting half of Australia's LNG output. Across Asia, the impact was palpable, as futures for liquefied petroleum gas on China's Dalian Commodity Exchange leaped by 6.7%, reaching Rmb4,276 ($597) per tonne on Thursday. Simultaneously, crude oil contracts in Shanghai experienced a 2.5% uptick, nearly reaching Rmb640 per barrel. In contrast, Europe's TTF benchmark gas price experienced a 9% decline, settling at €38.05 per megawatt hour on the same day. Warren Patterson, Head of Commodities Strategy at ING in Singapore, noted that most of Australia's natural gas supply typically flows to Asian buyers. Should the strike continue for an extended period, it could lead Asian buyers to explore alternative sources, intensifying competition with European buyers. Unions representing approximately 700 workers from Woodside and Chevron have sought "protected action ballot orders," a move that grants them the right to conduct votes on potential strike actions under Australia's Fair Work Commission. Negotiations, focused on issues such as pay rates, job security, and working conditions for offshore gas workers, continued between the Offshore Alliance union and the two energy giants. While the negotiation stages with Woodside and Chevron vary, prospects of industrial action loom large toward the end of August, potentially extending for months if resolutions aren't reached. Recent history serves as a reminder of the potential consequences, as a 76-day strike at Shell's Prelude facility last year resulted in a staggering A$1.5 billion ($980 million) loss in production costs. The union negotiators cite this example as a testament to the tangible impact of their actions. Brad Gandy, spokesperson for the Offshore Alliance, emphasized that members are striving for a fair and reasonable agreement, aware of the substantial financial implications that protected industrial action could impose on the export of Australian gas. Both Woodside and Chevron are prepared with a range of contingency plans to mitigate supply disruptions. Woodside reassured its commitment to secure energy supply and employee security, while Chevron reiterated its ongoing efforts to find mutually beneficial outcomes. As the energy market holds its breath, the outcome of these high-stakes negotiations could indelibly reshape the trajectory of global energy supply chains, reverberating across continents and industries alike.
NYMEX:TTF1!
by FOREXN1
5
NATGAS Breakout, Testing ResistanceNatGas is up +7% this morning as price has breached local resistance near $2.90 and testing long-term resistance near $3. Should price beat the $3 level the next move will likely be up toward the 200-day moving average which rests near $3.40. The PPO is reading short-term bullish momentum with the green PPO line crossing up through the purple signal line after both lines held above the 0 level on a recent pullback. Both lines trending above the 0 level indicates intermediate to long-term bullish momentum. The TDI indicator shows the green RSI line trending above the upper Bollinger Band and rising above the 60 level which both indicate short-term bullish trend. Generally, you want to remain long when the RSI line is outside of the upper band, and when the RSI is rising or trending above the 60 level. Overall action in the RSI has been trending between the 40-80 levels since May which is a sign of intermediate to long-term bullish price trend. Overall view on NatGas price is bullish with more gains expected as we head into fall/winter when demand tends to increase.
NYMEX:NG1!Long
by PrepForProfit
Nat Gas an Expanding Wedge offers an upside bias Mixed and volatile trading has resulted in an Expanding Wedge formation being posted on the intraday chart. This pattern has a bias to break to the upside. On a break through 2.656 the measured move target is the previous swing high at 2.794. With bespoke resistance located at 2.621, there is ample scope for a corrective dip to the downside before the impulsive rally begins. It should be noted that with a confluence zone located at 2.847, we could extend higher and the initial target level.
RUS:NG1!Long
by IanColeman
1
Bull flag or bearish channel?I don't know. Could be a bearish channel. I mean.... 1. Half the world is on fire right now. 2. Europe is seeing record heat with no end in sight. 3. 1/3 of US has heat warnings 4. Some little Mexican guy named El Niño wants to kill us all 5. North Atlantic surface temps never been this high 6. In Phoenix, you can fry an egg on your wife's ass 7. All the idiot tech bro's that moved to Austin from San Francisco now regretting it. breaks 2.70ish = gap fill to $3
NYMEX:NG1!Long
by sonidofranko
2