Natural Gas Forecast: Heating Up Amid Sizzling Weather Demand

Highlights

• Natural gas futures rise 3% on heatwave-driven demand
• Record power demand in Texas fuels gas market
• Gas output remains steady despite export plant maintenance

Overview

US natural gas futures witnessed a promising surge of 3% on Monday, indicating a bullish momentum in the energy sector. The increase followed a 1% hike in the previous session, with hot weather forecasts through mid-August driving up air conditioning demand, particularly in Texas. Surprisingly, this uptick came despite a decrease in gas flowing to US liquefied natural gas (LNG) export plants due to ongoing maintenance work.

Relentless Heatwave Fuels Weather Market

In Texas, power demand soared to a record high early this week, as the relentless heatwave compelled homes and businesses to crank up their air conditioners. The Electric Reliability Council of Texas (ERCOT), the state’s power grid operator, anticipates that this record will likely be broken again in the upcoming days.

Consistent Average Gas Output

Refinitiv’s data reveals a consistent average gas output in the US Lower 48 states at 101.8 billion cubic feet per day (bcfd) throughout August, matching the July figures. This is in close proximity to the monthly record of 102.2 bcfd set in May. Predictions by meteorologists affirm the persisting hotter-than-normal weather in these states until at least August 19.

Refinitive Predicts Jump in Demand

As for the demand side, Refinitiv projects that US gas demand, inclusive of exports, will remain at 104.8 bcfd this week and the next, before escalating to 106.9 bcfd. This anticipated rise stems from power generators burning more fuel and the increase in exports. Gas flows to the major seven US LNG export plants have dwindled from an average of 12.7 bcfd in July to 12.2 bcfd so far in August. This decline is primarily attributed to a reduction at Cheniere Energy’s Sabine Pass in Louisiana.

Latest EIA Data Supportive

Finally, according to the US Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report, working gas in storage was 3,001 Bcf as of Friday, July 28, 2023. This is a net increase of 14 Bcf from the previous week, suggesting a continued bullish trend for natural gas in the short term.

Short-Term Outlook:  Cautiously Bullish

As such, the combination of surging demand and consistent supply, especially in this hot season, paints an optimistic picture for natural gas in the coming weeks.

Technical Analysis

The current 4-hour price for natural gas sits at 2.647, marking a slight increase from the previous 4-hour price of 2.622. Despite this, it remains marginally below the 200-4H moving average of 2.651, implying a mixed sentiment. However, the price is significantly above the 50-4H moving average of 2.598, indicating some bullish momentum. The 14-4H RSI stands at 62.75, suggesting stronger upward momentum but not quite overbought.

The commodity’s price resides comfortably above the main support area (2.542 to 2.487), but hasn’t broken through the main resistance area (2.782 to 2.836). Given these indicators, the market seems to have a cautiously bullish sentiment.