Why is natural gas crashing? What does it mean for US dollar?
Natural gas nears 20-year lows amid oversupply, with US production at record highs. This crash, coupled with USD's rise, raises questions about their correlation. Learn the impact on forex markets and what could come.
Natural gas price nears historic low under 1.800
Natural gas futures have approached a historic low, trading below 1.800 in recent weeks. This price is less than 30 cents away from a 20-year low for the commodity. This significant dip highlights the volatility and market trends in the energy sector, underscoring the susceptibility of natural gas prices to broader economic forces and shifts in supply and demand. Traders and analysts closely monitor such movements, understanding their implications for both the energy market and related investment opportunities.
Natural gas market in oversupply
The natural gas market has hit an oversupply, with US natural gas production reaching an unprecedented 125 billion cubic feet per day (Bcf/d) in 2023. This all-time high in production contributes to the current low price environment, reflecting advancements in extraction technology and the expansion of natural gas projects. Such an oversupply situation influences global natural gas prices and directly impacts countries dependent on natural gas exports.
US dollar and commodities negatively correlated
Historically, the US dollar and commodities like natural gas and crude oil have shown a tendency to move in opposite directions. This negative correlation means that as the USD strengthens, commodity prices often decrease, and vice versa. However, this correlation has been weaker in recent months, with USD moving almost completely independently of such commodities.
US dollar appreciates amid natural gas weakness
Amid the weakness in natural gas prices, the US dollar has appreciated, rising in value against most major forex pairs in 2024. This appreciation reflects the intricate relationship between the commodities market and currency values, where changes in energy prices can influence investor sentiment towards certain currencies, particularly those from commodity-exporting countries.
How low can natural gas prices go?
With natural gas typically exhibiting low volatility during the summer months, there's speculation that the current low prices could persist. Factors such as weather patterns, storage levels, and changes in consumption rates will play crucial roles in determining how long these prices last. Traders and energy analysts will need to closely observe these factors, including broader economic indicators, to estimate future price movements and market conditions.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex broker like IG. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
Live prices on the most popular forex markets
See more forex live prices
Prices above are subject to our website terms and agreements. Prices are indicative only
