Movements by the natural gas futures since Monday’s announcement of the EU’s decision to cap natural gas prices indicate growing susceptibility over the efficacy of the capping mechanism.
Despite a steep fall on Monday and Tuesday, natural gas looks ready to bounce on Wednesday as a strong winter storm will track across the Great Lakes and East Wed-Sun with rain, snow, and strong winds.
Since gas supplies from Russia have been reduced a lot since August, Europe is likely to face a tough time rebuilding gas stocks next year compared with this winter.
Undoubtedly, Europe has filled reserves in November to ensure sufficient winter supplies but capping the gas prices at this time means inviting a tough time shortly as the changing weather pattern could result in lesser demand in 2023.
I believe that the weekly closing by the natural gas futures above $7 will confirm the continuity of an uptrend in January 2023.
Undoubtedly, the natural gas futures could find extreme volatility as the capping could trigger from Feb. 15, 2023, which could result in a sudden slide in natural gas prices.
In the short-term, natural gas futures could surge in spite of the growing selling, as Wednesday’s close will confirm a lot about the next directional move up to Jan. 6, 2023.
In a 4-Hr. chart, the formation of a bullish hammer could find a confirmation candle probably on Thursday if the inventory announcement favors the bulls.
In a daily chart, the formation of a ‘Hanging Man’ could result in bumpy moves on Thursday and Friday.
Most traders are still not confident as they need a more clear view of the gas price cap mechanism, its impact, and its implications once it is triggered.
Disclaimer: The author of this analysis does not have any position in Natural Gas futures. Readers are advised to take any position at their own risk; as Natural Gas is one of the most liquid commodities of the world.