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Natural gas still dominates as a commodity momentum trade in 2021

The natural gas futures markets seem like the right place for the active commodities trader right now. Futures prices are up over 81% YTD and over 14% in the past week.

Although spot prices for natural gas fell slightly in early August after a rally in the wake of the global economic recovery from the Covid-19 crisis, they have risen again in recent days, outperforming oil prices in terms of short-term gains. Directly behind, however, are gasoline prices, which have also risen by over 13% within a week. Heating oil increased by just over 11%. Overall, it was an exciting week to be in the energy markets.

“Over the past week, oil and gas prices and companies in the industry have risen sharply,” said Naeem Aslam, Chief Market Analyst, AvaTrade. “For example, Vallourec saw a surge this week following the successful installation of the first 3D-printed waterbushing, a safety-critical component in the oil and gas drilling industry, in the North Sea. The general surge across the industry could be attributed to concerns about scarcity of supplies and the disruption to oil and gas operations in the Gulf of Mexico caused by Hurricane Ida. “

The hurricane appears to have been a major contributor to the short-term price hike this week and last week. This has made the gas business in the Gulf of Mexico difficult and put US prices under pressure. Similar to last year, analysts are now looking at the weather forecasts for the hurricane season, as this could devastate the energy industry. Two more potential hurricanes are developing in the Atlantic, and tough gas traders will be keeping an eye on the weather.

All eyes on the Atlantic weather this month

Ida’s influence on the natural gas business should not be underestimated. Much of the production was still offline in the middle of the week. The USS Bureau of Safety and Environmental Enforcement estimated that 83% of gas production in the Gulf of Mexico has been halted with significant damage to offshore oil and gas platforms. According to the Energy Information Agency, offshore production from the Gulf accounts for 5% of the dry production of the USS.

We also saw upward sentiment in European natural gas prices, this time driven by uncertainty about how reliable Russian supplies will be this winter. Russia is currently working on the completion of the Nord Stream 2 gas pipeline to Germany, which will be crucial for supplying the Central European market with LNG.

The European liquefied natural gas market is tense

European LNG deliveries are currently considered to be quite scarce; European markets will continue to enter the US export market, and European gas buyers are also putting pressure on traditional Asian supplies. We don’t see this change once we move into the colder weather in the northern hemisphere.

From the point of view of technical analysis, natural gas futures are expected to slide in the next trading sessions, provided that no further weather influences occur.

The rise in gas prices was also reflected in the ETF market: The United States Natural Gas Fund (NYSE: UNG) is up 66% YTD. Over the one month period, it’s up 11%.

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