Despite a lot of selling pressure, natural gas gained strength overnight thanks to changing Russian gas rules. Russia will seek payment in rubles for gas sold to "unfriendly" countries, President Vladimir Putin said on Wednesday, and European gas prices prices soared on concerns the move would exacerbate the region's energy crunch.
Putin's message was clear: If you want our gas, buy our currency. It remained unclear whether Russia has the power to unilaterally change existing contracts agreed upon in euros.
European nations and the United States have imposed heavy sanctions on Russia since Moscow sent troops into Ukraine on Feb. 24. But Europe depends heavily on Russian gas for heating and power generation, and the European Union is split on whether to sanction Russia's energy sector.
EU leaders are expected to agree at a two-day summit starting on Thursday to jointly buy gas, as they seek to cut reliance on Russian fuels and build a buffer against supply shocks, but the bloc remains unlikely to sanction Russian oil and gas.
The European Commission said on Wednesday it was ready to lead negotiations pooling demand and seeking gas ahead of next winter, following a similar model to how the bloc bought COVID-19 vaccines.
Brussels is also aiming to strike a deal with U.S. President Joe Biden, who will attend the Brussels summit on Thursday, to secure additional U.S. liquefied natural gas supplies for the next two winters. Leaders may also discuss a demand from Moscow that countries pay in roubles for their Russian gas, a move some EU diplomats said could undermine existing EU sanctions by effectively unfreezing Russian assets.
Russia supplies 40% of the EU's collective gas needs, 27% of its oil imports, and 46% coal imports. Leaders will discuss that plan and a proposed law for countries to fill gas storage ahead of winter on Friday.
U.S. exporters have shipped record volumes of LNG to Europe for three consecutive months, as prices have jumped to more than ten times higher than a year ago. Europe is competing in global markets for tight LNG supply, and analysts have warned a jump in demand could inflate prices further and leave poorer nations struggling to afford supply.
The rouble-rocket could change the direction of the natural gas prices upward during this month if the United States and the European countries did not come forward with a solid solution soon.
In a monthly chart, natural gas is showing strong momentum during this month, and this may continue to keep the trend upward till this monthly closing. Undoubtedly, the development of the Russian front with changing geo-political and as well as economic sanctions could increase volatility in gas prices.
Still, the overall trend could remain upward as the natural gas sustains above the 200 Days Moving Average. A sustainable move by the natural gas above $5.444 will confirm the next breakout.
In a weekly chart, natural gas has been maintaining an uptrend with higher highs and higher lows by weekly candles, which looks evident enough for the advent of a short-covering rally if the current situation is not set right soon.
In a daily chart, the natural gas could form a new launching pad at $5.3 if the current gas price war does not ease shortly. The natural gas prices have found a strong base after sustaining above $5, which has turned into psychological support from a psychological resistance.
Finally, I conclude that the rouble-rocket looks to be a strong economic instrument to meet the economic sanctions imposed on Russia. It depends on the United States and the western countries how they deal with currently prevailing energy crises amid the Ukraine-Russia war.
Disclaimer: The author of this analysis does not have any position in natural gas. Readers are advised to take any position at their own risk, as Natural Gas is one of the most liquid commodities in the world.