Natural Gas Forecast: Prices Drop on Overnight Shift in Weather Forecasts

Highlights

• Conflicting supply and demand factors keep natural gas prices volatile
• US LNG exporters concerned about low gas prices in Europe and Asia
• Mixed demand signals due to inconsistent weather forecasts

Overview

Natural gas prices are lower on Tuesday as a result of an overnight shift in weather forecasts. This has erased yesterday’s short-covering gains. Prices rose on Monday due to forecasts predicting cooler weather and an increase in heating demand.

At 12:00 GMT, Natural Gas is trading $2.584, down $0.064 or -2.42%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $7.20, up $0.20 or +2.79%.

Demand-related News

US natural gas futures rose by 1% on Monday due to colder weather forecasts and higher heating demand in the upcoming week. Meteorologists predict colder weather through May 4 in the Lower 48 states, with a return to near-normal conditions from May 5-9.

As the weather gets warmer, Refinitiv predicts a slide in US gas demand, including exports, from 99.8 bcfd this week to 94.5 bcfd next week, which is higher than their previous forecast.

Supply-related News

The gas flow to US LNG export plants remained on track to hit a record high in April, causing an increase in prices. However, data from Refinitiv indicates that the rise in gas flows to the seven biggest US LNG export plants in April has raised concerns that low gas prices in Europe and Asia could cause US LNG exporters to cancel cargoes.

This was previously observed in 2020 when weak demand and oversupply caused the cancellation of at least 175 LNG shipments. U.S. gas futures are lagging behind global prices due to the US being the top producer with sufficient domestic fuel, leading to limited LNG exports.

Refinitiv reported that average gas output in the US Lower 48 states in April increased to 100.3 bcfd, almost matching the record set in January at 100.4 bcfd.

Short-Term Forecast

Based on the supply/demand developments, the natural gas prices are expected to remain volatile in the short term due to conflicting supply and demand factors.

While colder weather forecasts and higher heating demand are expected to support prices in the near term, the rise in gas flows to the US LNG export plants and concerns about low gas prices in Europe and Asia could lead to a decrease in prices in the coming months.

Technical Analysis

From a daily technical viewpoint, Natural Gas is trading on the weak side of its daily pivot at $2.353.  However, it is above the nearest support at $1.904. The long-term technicals are bearish, but the short-term outlook indicates a developing upside bias. Trader reaction to the near-term pivot at $2.353 sets the tone.

A sustained move over the pivot at $2.353 will indicate the buying is getting stronger. This could lead to a near-term acceleration to the upside with R1 at $2.727 the nearest target.

However, a sustained move under Pivot at $2.353 will indicate the short-term selling pressure is getting stronger. This could lead to a retest of the multi-year low at $1.904.

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