Natural Gas News: Middle East War Lifts Futures as Market Eyes LNG Risk

Natural Gas Edges Higher as Middle East War Puts a Floor Under Prices

Natural gas futures are edging higher Sunday night with the move being driven by a surge in crude oil prices. Over the weekend, the United States attacked Iran, and they responded with retaliatory attacks on several OPEC+ members. Crude hit a multi-month high and natural gas followed with a much smaller increase as traders assessed the risks of a shutdown of regional liquefied natural gas (LNG) shipments through the Strait of Hormuz.

The price action indicates that the events in the Middle East may have put a floor under natural gas prices, but the subdued rally is likely being fueled by forecasts calling for “warmer-than-normal late winter weather,” according to the Commodity Weather Group. These experts are calling for “above-normal temperatures in the eastern half of the U.S. for March 4-13.”

At 04:33 GMT, April Natural Gas futures are trading $2.917, up $0.058 or +2.03%.

Strait of Hormuz Shutdown Could Send U.S. LNG Demand Soaring

According to my research, the narrow Strait of Hormuz carries roughly 20 percent of the global LNG trade. If the Strait is blocked during the war, U.S. LNG demand could soar, taking natural gas prices with it. The blocking of the Strait will mean natural gas from the region will have a hard time getting to its European destination, and that means Europe will have to turn to the United States for supply.

Energy analytics firm ICIS just ran a model that suggests a three-month disruption would spike European benchmark gas prices higher, and this could lead to supply problems next winter. Europe relies on Qatari LNG volumes that move product through the Gulf.

The ICIS report went on to say that a three-month disruption of Qatari LNG would mean about a 14% hit to European supply. They also added that a disruption of that magnitude would likely push European gas supply into shortage territory.

Traders Watching for Supply Disruptions at the Start of the War

Natural gas traders will be watching the events in the Middle East closely to see if supply is already being interrupted at the start of the war. This could underpin prices and slowly drive up the market the longer the Strait is shutdown.

Traders will also be monitoring demand and production in the U.S. because the market still has a 0.3% deficit against the 5-year seasonal average to make up. Europe is also showing signs of a deficit, as of February 24, gas storage in Europe was 30% full versus the 5-year seasonal average of 47% full for this time of year.

Trend Is Down but Strait Closure Could Change Everything

Technically, the weekly trend is down according to the swing chart and the 52-week moving average. On the swing chart, a trade through $2.775 will reaffirm the trend. Taking out $3.150 shifts momentum to the upside, but buyers will have to take out $4.118 to change the main trend to up.

The 52-week moving average at $3.581 is solid resistance, while acting like a trend indicator and trigger point for an acceleration to the upside.

More Information in our Economic Calendar.