Energy crunch intensifies - Natural Gas
Tony Sycamore October 12, 2021 3:42 AM
Surging energy prices remain a primary concern for markets worried about a looming energy crunch and inflation.
Reinforced as crude oil closed above $80 overnight for the first time since 2014 and China’s most traded thermal coal futures contract jumped by the daily limit of 8% yesterday as floods forced the closure of 60 coal mines in China.
The driver of the energy crunch an interplay of the following:
- Green energy policies and a rush to hit energy control targets
- Surging power demand in the wake of COVID restrictions easing.
- Power-generation shortfalls on coal shortages and unstable renewable supply.
- Geopolitical developments including OPEC+, Russia, and Iran.
Specifically for natural gas, the driver of its 120% rally since the start of April, a supply shortage on falling domestic output, lower LNG imports, and limited pipeline imports owing to maintenance and a tight gas market in Russia. Playing out against the backdrop of strong demand following a cold winter and spring.
A pledge last week by Russia to increase natural gas supply to the continent, as noted by my colleague Matt Weller has taken the sting out of the market in recent days, and prices have since dropped 15% from a high near $6.50/MMBtu to below $5.50/MMBtu.
Apart from the obvious inflationary implications of higher energy prices, high natural gas prices negatively affect food production. Natural gas is used to produce ammonia and energy from fossil fuels to mine for phosphate. Ammonia and phosphate is a significant component of commercial fertilizer needed to grow food in bulk.
The fertilizer price, already high following the rally in the natural gas price, pushed higher earlier this month, following an announcement that China would halt all phosphate exports.
The recent pullback in natural gas has worked off overbought readings, to be holding above uptrend support $5.30 area.
Should this support hold and natural gas see a sustained break above the recent $6.466 high and the 2014 $6.49 high, it could lead to a very messy move towards $10.00 coming from the high of December 2000 viewed on the monthly chart below.
Source Tradingview. The figures stated areas of October 12th, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.