Natural Gas Forecast: Prices Surge to 3-Week High Amid Hot Weather, EIA Decline

Highlights

• Natural gas prices surge on soaring gas prices in Europe and declining U.S. output.
• Hot weather conditions, bullish storage report, and strong forecast contribute to price increase.
• Lower U.S. gas production, increased Canadian exports, and peak electricity demand projections impact market.

Overview

Natural gas prices surged to a three-week high on Friday, driven by soaring gas prices in Europe and a decline in U.S. output. Although most of the earlier gains were pared, the market found support in these factors. Yesterday’s session saw a significant spike in natural gas prices, attributed to hot weather conditions in Texas/ERCOT, a bullish miss in the EIA weekly storage report, and a strong 8-15-day forecast.

At 12:00 GMT, Natural gas is trading $2.4765, down $0.0015 or -0.06%.

Natural Gas Prices Soar Higher

During Thursday’s session, natural gas prices soared. The surge was mainly influenced by the expectation of hot conditions persisting in Texas/ERCOT for the foreseeable future. The 8-15-day forecast indicated continued hot weather. While a decline of 1-2 billion cubic feet (Bcf) in U.S. production further fueled the price increase. Additionally, a bullish miss in the EIA weekly storage report contributed to the upward momentum. The forecasted maximum temperatures for ERCOT over the next 15 days showed intense heat, with daily highs averaging near 100°F.

US Gas Output Declines, Canadian Exports Rise

In terms of supply news, average gas output in the U.S. Lower 48 states decreased to 101.9 billion cubic feet per day (bcfd) in June, down from the monthly record of 102.5 bcfd in May. Meanwhile, Canadian gas exports to the U.S. were expected to rise to 7.8 bcfd, up from around 7.2 bcfd earlier in the week when wildfires were occurring in Alberta and other Canadian provinces. Meteorologists predicted mostly normal weather conditions from June 15-22, followed by a period of hotter-than-normal conditions from June 23-30. Refinitiv anticipated an increase in U.S. gas demand, including exports, from 93.1 bcfd this week to 96.1 bcfd next week, driven by the upcoming warmer weather.

ERCOT Forecasts Record-Breaking Peak Demand

In terms of demand news, the Electric Reliability Council of Texas (ERCOT) adjusted its projections for peak electricity demand, now expecting a break in peak demand records next week. As homes and businesses ramp up air conditioning usage to cope with the first heat wave of the summer, increased electricity demand will likely impact natural gas consumption in the region.

Varied Weather Patterns Impact Gas Demand

Weather data indicates an active weather system for the current week. This includes showers, thunderstorms, and comfortable temperatures ranging from the 60s to 80s. This results in light demand across most areas, except for the Southwest, Texas, the South, and Florida, where a hot ridge will lead to temperatures in the 90s to 100s and regionally strong demand. Looking ahead, meteorologists expect the weather to remain mostly normal until June 22, after which it will turn hotter than normal until June 30. This change in weather has the potential to influence natural gas demand.

Short-term Outlook

Overall, natural gas prices reached a three-week high earlier today. The more was driven by rising gas prices in Europe and a decline in U.S. output. Yesterday’s session demonstrated a significant price spike, influenced by hot weather conditions, a bullish miss in the EIA storage report, and a positive 8-15-day forecast. Supply news indicated a decrease in U.S. gas output and increased Canadian gas exports, while demand news focused on peak electricity demand projections in Texas. The upcoming weather conditions are expected to play a crucial role in shaping natural gas demand in the coming days.

Technical Analysis

Natural gas is edging higher on Friday as it continues its month-long rally, touching its highest level since May 22. The buying has been strong enough to take out $2.465 (R1), turing this level into support.

A sustained move over $2.465 will indicate the buying is getting stronger. If this continues to generate enough upside momentum then look for a possible near-term surge into $2.894 (R2).

A failure to hold $2.465 will dampen some of the upside momentum, but the uptrend will remain intact unless the $2.190 (PIVOT) fails as support.

For a look at all of today’s economic events, check out our economic calendar.