As the U.S. and China work to ameliorate their trade differences, the natural gas markets are awaiting the result, which could either send prices skyward for Direxion Daily Natural Gas Related Bull 3X ETF (NYSEArca: GASL) for long traders or down for Direxion Daily Natural Gas Related Bear 3X Shares (NYSEArca: GASX) to appease the shorts.
Last year, the natural gas markets didn’t experience any major disruptions despite potential headwinds from Chinese tariffs. However, as the U.S. and China, both heavy consumers of natural gas, work out a permanent trade deal, it’s preventing boatloads of capital investment from entering the markets.
“They’re just the elephant in the room and until there’s clarity on where China is going to source their natural gas … then it’s hard for other buyers to make decisions about which projects to attach themselves to,” said
Nat gas currently sits at 2.729 as of 2:30 p.m. ET–up slightly higher at 0.18 percent.
Even if a permanent trade deal doesn’t materialize from ongoing negotiations, some analysts feel its only natural that the U.S. and China resume their natural gas trading. According to CNBC, China and the U.S. are reportedly working out a plan to address trade, such as assuring American companies have access to Chinese markets to protecting U.S. intellectual property.
Both economic superpowers are now more flexible with respect to altering the March 1 deadline to strike a trade deal, but this will delay the removal of China’s current 10 percent tax on U.S. natural gas.
“They’re certainly a very good fit,” said Alex Munton, principal analyst for gas and LNG at energy research firm Wood Mackenzie. “On the one hand, China is the fastest growing LNG market and the U.S. is the fastest growing LNG supplier.”
Additionally, the tariffs are creating uncertainty for natural gas developers who want to line up Chinese buyers like Australia’s LNG Limited. The company said talks with potential Chinese customers were in limbo due to the tariffs, which forced it to delay financing for its planned Magnolia export terminal in Louisiana.
“Clearly there is an issue for some projects if they are targeting the China market,” Munton said. “We do think it’s going to be difficult in the current context for deals to be signed.”
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