The Nat Gas Sell Off Looks Overdone

In the commodities space, dominating trader chat heading into the final months of the year is the reversal in the price of Nat Gas (Natural Gas). 

Over the first half of the year, the explosive move into new record highs drew a lot of attension. After a correction lower during the summer, the huge rebound and breakout to yet further record highs once again put Nat Gas front and centre. 

Following the new peak in early September, Nat Gas futures have since corrected sharply once again, recently falling to their lowest levels since March. 

Looking ahead to the end of the year and thinking about Q1 next year, traders are now questioning whether the correction is likely to deepen further or whether another rally is lurking around the corner. 

Factors Driving Nat Gas

  • Panic buying 
  • Seasonal demand 
  • New pipeline opening


The driver behind the initial rally in Nat Gas prices was the Russian invasion of Ukraine. With massive disruption to supply coming out of Russia, as well as the impact of sanctions against Russia, which exacerbated these issues, prices soared as traders feared crippling scarcity. These fears were compounded over the summer as Russia began scaling back supply to Europe through its Nord stream pipeline, including several periods of total supply outages due to ‘technical issues’. 

Moving through the summer, the major fear then became what would happen to European households over winter given the excess need for heating oil and fuel. With fears that a Russian energy blackout would lead to severe energy droughts, European member states began buying huge quantities of natural gas from wherever they could get supply. This buying further drove up the price of gas. 

Warmer Autumn Reduces Demand

However, moving into the Autumn, we’re noting an interesting dynamic where an unusually warm season in Europe has kept usage at much lower levels than we typically see at this time of year. Additionally, with EU leaders putting in place guidance for businesses and consumers to reduce their demand where possible, the net effect is that storage facilities in Europe are at record highs, allaying fears of a shortage over the winter and removing the need for panic buying. This dynamic has been one of the key issues driving gas prices lower in recent weeks. 

Baltic Pipeline Opening

Another critical development in recent weeks has been the opening of the new Baltic pipeline which carries gas from Norway to Poland via Denmark. The pipeline is a significant step in helping divert energy needs in Europe away from Russia and helps mitigate the impact of disruptions with the Russian Nordstream pipeline. 

Downside Risks for Nat Gas

Looking ahead towards the end of the year and the start of 2023 then, there are some important issues to monitor. The first is, the impact of the EU energy embargo on Russia which comes into effect from December 5th.

If European storage facilities can cope with the increased demands on them gas prices should stay subdued. Notably, if the European winter follows what we’re seeing of autumn and turns out to be milder than usual, this will keep gas demand below typical seasonal levels, further lowering prices near term. Similarly, however, if the winter takes another turn and ends up being colder than usual, this might increase the demand on storage facilities driving the need for fresh purchases, putting upward pressure on gas prices. 

Bullish Factors for Nat Gas

However, what is likely to be the key factor to monitor is how the military situation between Russia and Ukraine develops. Recent suggestions that Putin might end or pause his invasion would no doubt see prices sharply lower if confirmed.

Given the other conditions in place, any easing of tensions between Russia and Ukraine would no doubt see and further unwinding of the spike in gas prices. Similarly, however, if Putin’s ‘special military operation’ continues in Ukraine, worse still, if it escalates, this would no doubt drive gas prices higher. Fears that Putin might end up using nuclear weapons if Ukraine continues to drive Russian forces out of the country are certainly high on the list of global risk factors currently and would have sharp implications on all commodities prices, not just nat gas. 

Technical Views

Natural Gas Futures 


Following the breakdown below the July lows, gas prices have since bounced back and are now sitting above the 5.472 level, but are capped by resistance at the 6.431 level. Essentially, we are rangebound between these two levels for now with a decent risk of a move either way. If there is a break to the topside, the next level to watch will be a retest of the 7.480 resistance, while to the downside a break of the 4.775 lows will open the way for a move down to 3.766 next. 


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