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Natural gas prices rose more than 20% on December 30 after new forecasts indicated that arctic conditions could deliver the coldest January in the United States in over a decade. After years of warmer winter temperatures, the news caught some traders off guard.
With storage levels and demand monitored by traders, the risk of severe cold weather could rapidly deplete reserves. A prolonged deep freeze could disrupt production as infrastructure faces freezing conditions, potentially forcing shutdowns which may drive prices higher.
The U.S. Energy Information Administration anticipates that household spending on winter heating will remain mostly stable compared to last year, except in the Midwest, where gas prices are projected to rise. This could also cause electricity prices to shoot higher.
Meanwhile, the United States’ aging electricity grid faces growing security challenges from extreme weather events and surging power demand, driven by artificial intelligence and the energy transition.
Traders also noted that European gas prices climbed to a 13-month high due to cold weather and the expiration of a deal that allowed Russia to pipe gas to Europe across Ukraine. This adds pressure to an already fragile European market, where storage reserves are dropping fast.
The problem has been made worse by Gazprom’s intention to cease gas deliveries through Ukrainian pipelines following the expiration of its transit arrangement. This disruption, combined with reduced LNG exports from the United States because of President Biden’s moratorium on new export permits, raises supply concerns for global markets.
Natural gas prices are expected to remain bullish, driven by colder weather and heightened demand. Traders might anticipate further upside if the weather continues to predict prolonged heavy winter conditions.
Technical Analysis
Source: TradingView
XNG/USD rebounded after the price pulled back after it spiked higher on December 30 where it reached $4,144. Price has been forming higher lows and higher highs with all 3 EMAs under the price which maintains a strong bullish momentum.
If buyers maintain momentum and drive the price back above $3,568, traders will be watching the $4,144 zone as resistance. In a bearish scenario where price fails to sustain momentum, natural gas could drop around $2,954, where support might be formed. Further price movement will depend on market dynamics.
