Natural Gas Analysis: Third Lowest Value of the Year about to Be Fuelled by Optimism?

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Natural gas is a consumable commodity that has been in huge demand in the domestic and commercial markets across Western Europe over the past year and a half.

There are many nations in mainland Europe as well as the United Kingdom whose populations have been battling an energy price crisis over this period of time, in some cases to the extent that people have had to make a decision as to whether to buy food or to heat their home in winter.

That quite astonishing attribution to civilised Western society has been brought about via various fiscal policies and geopolitical decisions, which are out of the hands of the ordinary person who just wants to go about their life without having to worry about how to source or afford basic necessities.

In Britain, the government’s vocal stance has been clear for all to see, and sanctions against one of the world’s largest and most important suppliers of energy raw materials have been multi-faceted.

In that case, the blame is being laid firmly at the door of the British authorities, which blame this scenario for the rising cost, when in reality, Russian energy companies only provide around 5% of the natural gas used in the United Kingdom. Yet, the prices are very high, and over 30 domestic energy companies have gone bankrupt.

In mainland Europe, things are somewhat different, as approximately 40% of its natural gas was from Russian energy providers until the end of 2021. After European governments applied sanctions to the recipient bank accounts used by European energy providers to pay for the raw material product supplied by Russian companies, the ability to obtain gas from that particular source diminished tremendously.

The past six months have been a time period in which the market for natural gas has perhaps not echoed such a circumstance, in which the sudden curtailment of such a large amount of energy products to a vast continental area, which is highly developed and reliant on energy provision, to maintain its modus operandi.

In fact, despite the sudden demand and high prices, the actual value of natural gas on the commodities market has declined consistently since the beginning of this year.

Indicative pricing only

By Friday last week, the global value of natural gas had declined to $2.25 per cubic foot. This is the third lowest point since January this year and is an overall 43% drop during the course of 2023.

Whilst this may appear bizarre, things may be set to change because, yesterday, some analysts began to note that the value of European gas on the futures market is set to jump.

Natural gas futures appear to have jumped by the largest amount since March this year as a result of higher demand across the Asian continent and a tighter liquified natural gas market. There are even some suggestions that in Europe alone, the value of natural gas futures contracts is up by 20% in 3 months.

On the other hand, the British Labour Party has indicated that should it be elected into central government, it would take steps to block all new domestic oil and gas developments and invest in renewables, therefore, effectively disabling the United Kingdom’s ability to be energy self-sufficient whilst all the while maintaining sanctions on gas imports from Russia.

Last year, the incumbent British government cancelled a long-term project to build nuclear power stations in England, which was being operated by Chinese nuclear power giant CNG, and sent all of their executives and project engineers home.

There is massive speculation regarding the possible direction the authorities will take with regard to energy production across Western markets.

One thing is for sure: the steady downturn in the value of natural gas on the open market is at odds with the analytical views of the financial markets industry, which tends to take a bullish approach based on these factors.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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