Natural Gas Forecast: Cooler Trend Sparks Bearish Market Turn

Highlights

• Natural gas futures plummet due to bearish weather outlook.
• NatGasWeather reports cooler temperatures in northern US.
• High demand expected with extreme heat in certain regions.

Overview

On Tuesday’s opening, natural gas futures took a sharp downward turn, indicating a bearish shift in weather forecasts. The recent price action suggests that an announcement of cooler temperatures must have occurred.

NatGasWeather: Cooler Trend Eases Demand

According to NatGasWeather, overnight data indicated a trend of 3-5 CDDs cooler, particularly in the northern US, supported by stronger weather systems. Although the southern half of the US remains rather hot, national demand is projected to stay near seasonal levels through Saturday and then again on August 9-10. While the August 11-16 period is still expected to be quite hot, it is not as scorching as previously anticipated. The recent data has shown a slight cooling trend compared to the hotter weekend trends.

NatGasWeather’s short-term outlook for August 1-7 predicts high pressure prevailing in the western, central, and southern US with temperatures ranging from upper 80s to 110s, with the hottest areas being California, Texas, and the Southern Plains. Weather systems will move across the Great Lakes and Northeast, bringing showers and highs of upper 70s to 80s, followed by a warming trend in the East on Sunday and Monday. Overall, there will be moderate-to-high demand through Saturday, followed by high demand on Sunday and Monday.

Increased Demand Offsetting Record Output

Monday’s Recap: U.S. natural gas futures experienced little change on Monday as forecasts for increased demand over the next two weeks offset record output and lower-than-expected hot weather forecasts. Despite the slightly cooler weather projections, meteorologists still anticipate temperatures to remain higher than normal until mid-August.

Last Friday marked the hottest day so far this summer in the U.S. Lower 48 states and the third hottest on record. Extreme heat last week stressed electric grids, leading to higher spot power prices. To meet the heightened demand for electricity, U.S. generators burned a record amount of gas for three consecutive days last week. With the heatwave continuing in Texas, the Electric Reliability Council of Texas foresees new power demand records on Monday and Tuesday.

Short-Term Outlook:  Weather Dependent

The market for natural gas remains sensitive to weather forecasts, and with the ongoing heatwave, traders and investors will closely monitor any further shifts in the weather outlook. The recent cooling trend in the weather data could impact short-term demand, but overall, the market is expected to remain volatile as it responds to changing weather patterns and energy demands.

Technical Analysis

Natural gas market sentiment is bearish based on the 4-hour chart data. The current price of 2.533 is below the 200-4H moving average of 2.653 and the 50-4H moving average of 2.675, indicating potential downtrend signals. The 14-4H RSI reading of 33.39 suggests weaker momentum.

While the main support area of 2.487 to 2.542 may provide some temporary relief, the price remains below the main resistance area of 2.782 to 2.836, acting as a barrier to further upside movement. Traders should remain cautious as Natural Gas trades bearishly while testing the support area.