Natural Gas Price Forecast Following the Suspension of Russian Supplies to Unfriendly Countries

• European natural gas price has soared following the suspension of Russian supplies.
• The disruption in supplies to Bulgaria and Poland has spilled over to the US market.
• Investors are keen on the EIA natural gas inventory data set for release later on Thursday.

European natural gas prices are on the rise after Russia suspended supplies to Bulgaria and Poland. In a statement, Gazprom indicated that the suspension was as a result of the two countries failing to make the payments that were due by the end of business on Tuesday. 

Poland’s PGNiG and Bulgaria’s Bulgargaz were set to pay for April supplies in Russian roubles to the state-owned Gazprom Export. This follows a decree by President Vladimir Putin in March requiring “unfriendly countries”, to start paying for Russian gas exports in roubles in April. 

In response to the new rule, energy ministers from the G7 countries stated that the move was against the existing contracts. Besides, it would be a way for Russia to override the EU sanctions imposed against the country for invading Ukraine. The G7 nations also stated that they were prepared for the resultant scenarios, including the suspension of Russian supplies. 

Russia supplies about a third of the gas used in the European continent. About a year ago, the benchmark for European natural gas - Dutch TTF futures - was trading below 25 euros per megawatt-hour. Since then, it has surged by over fourfold. As at the time of writing, it was trading at 107.57 euros/MWh. On 8th March, it skyrocketed to a record high of 212.15 euros/ MWh amid the ongoing Russia-Ukraine crisis.

Notably, news of the halting of gas supplies to Bulgaria and Poland has spilled over to the US market. As Europe strives to reduce its dependence on Russian energy exports, the US has been one of the eyed alternatives. About a week ago, US natural gas prices surged to their highest level since October 2008 at $8.18 per million British thermal units. After pulling back to a two-week low of $6.49 at the beginning of the week, it is back up to $7.38 as at the time of writing.  

Later on Thursday, the market will further react to the weekly inventory data from EIA. In last week’s report, the agency showed that the amount of working gas in storage has increased by 53 billion cubic feet (Bcf) for the week ending on 15th April. Even so, the stocks are still 428 Bcf below the level recorded a year ago and 292 Bcf less than the 5-year average of 1,742 Bcf. Low inventories in the US and a rise in exports to Europe are set to continue fuelling the uptrend in natural gas prices. 

US natural gas price forecast

Since 2008, 6.55 has been an evasive level for the US natural gas futures. However, the rallying triggered by the ongoing Russia-Ukraine war has made it a steady support zone for close to three weeks now.     

On a daily chart, it is trading above the 25 and 50-day exponential moving averages. Based on these technical indicators, coupled with the fundamentals, I expect natural gas price to remain above 6.55 - which is along the 25-day EMA - in the short term. 

In the immediate term, a pullback will likely have it find support at 7.00. On the upside, Wednesday’s high of 7.54 will be a resistance level to look out for. However, as a reaction to the EIA inventory data, hints of dwindling stockpiles will likely boost prices further to the 7.87. While a retest of the 14-year high of 8.18 cannot be dismissed, it will likely not occur in the immediate term.