Natural Gas Forecast: Futures Nudge Higher Ahead of EIA Storage Report

Highlights

• Natural gas futures rise before government storage report.
• Traders looking for EIA to report a 49 Bcf Build
• Maintenance work and hot weather affect gas futures.
• Demand expected to increase despite output decline.

Overview

Natural gas futures are inching higher on Thursday as traders eagerly anticipate the release of the latest government storage report.

EIA Weekly Storage Report on Tap

Survey averages suggest a build of +49-52 Bcf for today’s EIA weekly storage report, slightly smaller than the 5-year average. Despite the Fourth of July Holiday, where many enjoyed a long weekend, we’re predicting a build of +49 Bcf.

Last week, the EIA reported that working gas in storage was 2,877 Bcf as of Friday, June 30, 2023. This represented a net increase of 72 Bcf from the previous week. Stocks were 575 Bcf higher than last year at this time and 366 Bcf above the five-year average of 2,511 Bcf. At 2,877 Bcf, total working gas is within the five-year historical range.

Mixed Weather Outlook

Looking ahead to July 13-19, NatGasWeather predicts very warm to hot conditions across the southern, western, and eastern parts of the US, with temperatures ranging from the upper 80s to 100s. California to Texas will experience the hottest weather, while the East Coast will see temperatures in the mid-90s. The Midwest, on the other hand, will have comfortable weather with showers and highs in the upper 60s to 80s.

Lower LNG Demand Drags Prices Lower

U.S. natural gas futures experienced a 3% decline on Wednesday due to maintenance work that has limited the gas flowing to the country’s liquefied natural gas (LNG) export plants. This decline occurred despite a drop in output and forecasts for continued hotter-than-normal weather, especially in Texas. The Electric Reliability Council of Texas (ERCOT) projected record-high electricity use as the latest heatwave prompts increased air conditioner usage.

Volatility Remains Subdued

Extreme heat increases the demand for gas generators to produce power for cooling, particularly in Texas, where gas-fired plants account for 49% of the state’s power. Despite these developments, historic volatility in gas futures has reached its lowest level since April 2022, reflecting a lack of significant price movements in recent weeks.

Mixed Supply/Demand Situation Weighs

Turning to supply and demand, gas output in the U.S. Lower 48 states has risen in July, on track to surpass the monthly record high set in May. However, daily output fell over the past five days due to declines in North Dakota, Pennsylvania, and Texas, though preliminary data is subject to revision. Meteorologists predict that hotter-than-normal weather will persist through at least July 26, leading to increased gas demand.

Refinitiv forecasts that U.S. gas demand, including exports, will rise from 100.1 bcfd to 105.7 bcfd as hotter weather approaches. Gas flows to major LNG export plants have increased in July, but still remain below the monthly record due to ongoing maintenance at facilities such as Cheniere Energy Inc’s Sabine Pass and Corpus Christi.

Short-Term Outlook:  Traders Await Next Bullish Catalyst

In summary, natural gas futures are inching higher as traders await the government storage report. The weather forecast indicates hot conditions in several regions, while maintenance work on LNG export plants contributed to a decline in futures prices. Despite the drop in output, demand is expected to rise with the prolonged period of hotter-than-normal weather.

Technical Analysis

The current market sentiment for Natural Gas is mixed, with some bullish and bearish indications. The price is slightly higher than the previous close, suggesting a marginal upward movement. It is trading above the 200-4H moving average, indicating a bullish element, but below the 50-4H moving average, which implies some bearish pressure. The 14-4H RSI reading is below the neutral zone, indicating a bearish tone.

The main support area is identified between 2.487 and 2.542, while the main resistance area lies between 2.782 and 2.836. Based on the available information, the market sentiment for Natural Gas remains steady-to-bearish.