Natural Gas Forecast: Futures Stable Amidst Bullish Weather Forecasts

Highlights

• Natural gas futures experience limited movement amidst weather forecasts and storage build.
• Anticipated hot weather and maintenance work on LNG export plants affect gas flows.
• Rising demand and increased inventories contribute to mixed performance of natural gas futures.

Overview

Natural gas futures are trading nearly flat on Friday. Investors are continuing to assess the impact of the latest weather forecasts and yesterday’s potentially bearish government storage report. Traders will be primarily focused on the outlook for the weekend, which could lead to a gap higher on Monday if experts continue to predict significant heat for the last week of June.

Futures Steady as Output Drop Balances Storage Build and Demand

Futures experienced little change on Thursday as a drop in output and anticipated increased demand balanced out a larger-than-expected weekly storage build. The Energy Information Administration (EIA) reported that utilities added 95 billion cubic feet (bcf) of gas into storage, surpassing analysts’ forecasts of a 91-bcf build. This build was larger than usual for this time of year due to mild weather reducing air conditioning demand. Despite concerns over maintenance work on liquefied natural gas (LNG) export plants limiting gas flow, the Electric Reliability Council of Texas (ERCOT) projected record-breaking electric use in the coming days.

Gas Demand Boost Expected Amidst Heat and Maintenance Challenges

Energy traders noted the potential for high air conditioning demand in Texas, where about 49% of power comes from gas-fired plants. Additionally, extreme heat and power outages caused by recent storms in Texas added to the challenges faced by utilities. However, the market remained optimistic as hot weather was forecasted for the Lower 48 states from June 24 to July 7, leading to an anticipated rise in gas demand. Gas flows to major U.S. LNG export plants were lower due to maintenance activities.

Gas Inventories Surge, Futures Rally

In terms of storage, the EIA reported a 95-bcf increase in total inventories, exceeding analysts’ expectations. Gas futures initially declined on this news. However, they later settled higher due to expectations of rising cooling demand and the gradual onset of the summer season. Gas futures on the Henry Hub were on track for their best monthly performance since August.  This indicates a potential shift in price trends. However, it is worth noting that the recent storage build was higher compared to the same period last year and the five-year average.

Inventories Significantly Higher

Total gas inventories in the United States remained significantly higher than the previous year. They are standing at 2.729 trillion cubic feet (tcf), a 26.5% increase. This level was also 15.3% higher than the five-year average. The combination of anticipated demand and increased inventories contributed to the mixed performance of natural gas futures in the market.

Stable Natural Gas Futures

In summary, U.S. natural gas futures experienced limited movement as a result of a larger-than-expected storage build and forecasts of increased demand. While maintenance work on LNG export plants affected gas flows, the market remained optimistic due to anticipated hot weather and rising cooling demand.

Technical Analysis

The market sentiment for Natural Gas is currently bullish as the 4-hour price of 2.638 is higher than the previous close. The price is also above both the 200-4H and 50-4H moving averages, indicating strength. The 14-4H RSI of 59.46 suggests a balanced sentiment.

The main support area is between 2.333 and 2.285, while the main resistance area ranges from 2.681 to 2.717. With the price nearing the upper end of the main resistance area, the market shows a bullish bias. However, the absence of information on minor support and resistance levels limits a more precise analysis.