Natural Gas Forecast: Rebounding after Testing Three-Week Low; Demand in Focus

Highlights

• Natural gas futures rebounding after reaching a three-week low.
• Bullish forecast predicts strong demand due to hot weather and maintenance.
• Gas output increases, positioning the U.S. as a top LNG supplier.

Overview

Natural gas futures are showing signs of a slight rebound after reaching a three-week low on Friday. Despite trading within a narrow range, investors are uncertain, anticipating potential volatility in the market. The lack of significant price movement indicates that the weekend’s forecasts did not bring about significant changes.

Strong Demand Expected Amidst Heatwave

One notable development is a slightly bullish adjustment to the latest forecast, which predicts warm to hot high pressure dominating the southern, western, and eastern parts of the United States. This is expected to drive strong demand, particularly in California and Texas, with temperatures ranging from the upper 80s to 100s. However, the East Coast will also experience mid-90s temperatures. Meanwhile, the Great Lakes/Ohio Valley region will enjoy more comfortable weather conditions with showers and highs ranging from the upper 60s to 80s. Meteorologists suggest that the Lower 48 states will likely experience above-average temperatures until at least July 29.

Capped by Milder Weather in Northeast

Despite the overall expectation of hot weather, natural gas futures experienced a decline on Friday. This was influenced by forecasts of milder weather in the U.S. Northeast, increased gas production, and reduced flow of fuel to liquefied natural gas (LNG) export plants due to ongoing maintenance at certain facilities.

Texas:  Record-Breaking Power Demand

Texas, in particular, is grappling with a heatwave, resulting in record-breaking power demand. With air conditioners running at full blast, the Electric Reliability Council of Texas (ERCOT) anticipates that power demand will continue to surge. Texas relies heavily on gas-fired plants for electricity generation, which significantly increases gas consumption during extreme heat. In 2022, approximately 49% of the state’s power came from gas-fired plants, while wind, coal, nuclear, and solar power contributed the remaining percentages.

Refinitiv:  Output Slightly Higher in July

Refinitiv, a data provider, reveals that gas output in the U.S. Lower 48 states has increased slightly in July compared to the previous month. Furthermore, as hotter weather approaches, Refinitiv predicts an upsurge in gas demand, including exports. The forecast indicates an increase from 101.2 billion cubic feet per day (bcfd) to 106.6 bcfd in the following week and 107.4 bcfd in two weeks. These projections are higher than those made earlier.

Limited LNG Exports Still an Issue

Although gas flows to major U.S. LNG export plants have risen in July, they remain below the monthly record due to ongoing maintenance at various facilities. However, with the United States poised to become the world’s leading LNG supplier in 2023, surpassing Australia and Qatar, the demand for U.S. exports remains strong due to global price increases and supply disruptions caused by Russia’s conflict in Ukraine.

Technical Analysis

The market sentiment for Natural Gas is currently neutral to slightly bearish. The 4-hour price is slightly lower than the previous close, indicating a minor downward movement. It is trading below the 50-4H moving average, suggesting potential resistance. It’s also trading slighly above the 200-4H moving average, which held as support when tested on Friday. The 14-4H RSI is below 50, indicating weaker momentum.

The main support area is between 2.487 and 2.542, while the main resistance area is between 2.782 and 2.836. Although the market is not in oversold territory, the overall sentiment leans towards bearishness. Traders are also showing respect for the support zone, which was tested successfully on Friday. Further confirmation is needed to determine if the market will continue on a bearish trajectory or rebound from the support zone.