Financial Trading Blog

The NatGas Situation



Energy futures in Europe have seen wild price swings recently; is there any chance they will settle down into a steadier pattern?
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Explaining the moves

The Nord Stream 1 pipeline is shut down as of writing, reducing about a fifth of the supply of natural gas from Russia to Germany.

Yet the price of some natural gas futures in Germany has fallen by around 50% from highs seen just a week ago. That's when energy prices hit $1,000/MWh, and despite the massive drop, the price is nowhere near normal levels.

What happened? Over the weekend, Germany's Economic Minister Habeck said that in building up its inventory of natural gas. He joined a chorus of German government authorities saying that the country's energy situation was "secure", if

The sudden price drop had more to do with the unwinding of speculative positions than reduced demand. Germany has been buying any and all natural gas at any price to fill inventories. But with nearly full reserves, then the government will be in a position to push back against speculators.

 

Where things are going

Germany's goals are to have 85% of the necessary gas inventory by October . Authorities expect to reach 95% inventory by November 1. Habeck has said that he doesn't expect Russia to and is planning accordingly. German imports now just 10% of its natural gas from Russia, down from 55% last year.
German authorities are seeking to reassure their citizens and the markets that the situation is under control. And that might be the case for Germany; but other nations with less economic capacity, even in the EU, are facing budgetary pressure.
Spain and Portugal have secured an "Iberian Exception" to cap wholesale prices, a model that might be implemented in the rest of the EU. Once the immediate emergency of getting enough gas is resolved, the next issue to be addressed is likely to be the budget shortfalls, particularly in the periphery, as a consequence of buying the necessary energy supplies.
NG Finding support
The price of Natural gas for October slid back to 9.00 after reaching a record high at 10, forming local support. The stochastic divergence could send the prices lower, towards the 50-day average of 8.20. If lost, the 200-day equivalent lies near 6.60.
In the event bulls find their footing, the top at 10.00 is short-term resistance. Above there the commodity enters price discovery territory with halves and round levels offering possible rejection. 10.50 and 11.00 are the near-term key levels.
natgas

 

Key takeaways
Nord Stream 1 is being shut down and Germany’s natural gas prices are falling, but they're still not close to normal. The German government is acknowledging the issue of natural gas pricing but feels secure with enough inventory to not be at risk, striking back against speculators, as the country is stockpiling gas to prepare for a winter without Russia.

Germany is coming under control, but Spain and Portugal are going to see budget shortfalls after securing a deal to cap wholesale prices. Other peripheral countries cannot even resolve immediate emergencies.

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