Natural Gas Forecast: Record-breaking Demand in Texas Fuels Price Surge

Highlights

• Rising demand expectations in Texas propel natural gas market rally.
• Lower U.S. output and hot weather forecast contribute to bullish sentiment.
• Record volume of new LNG projects highlights U.S. as leading LNG producer.

Overview

Natural gas futures opened higher on Monday as the market continues its rally, driven by rising demand expectations in Texas. The Electric Reliability Council of Texas (ERCOT) projected record-breaking electricity usage this week, surpassing last year’s peak.

With soaring temperatures in Houston expected to reach 102.2°F (39°C), the grid operator issued a weather watch and forecasted increased demand. This surge in energy needs serves as a reminder of the devastating power outages experienced during the February 2021 freeze.

Authorities have urged consumers to conserve energy as a precautionary measure, while power outages have already impacted thousands of users in Kentucky, Tennessee, Arkansas, and Texas.

Market Reverses Friday’s Weakness

Despite Friday’s decline, where U.S. natural gas futures fell 3% due to reduced demand forecasts and lower gas flows to liquefied natural gas (LNG) export plants, the market remains bullish. Lower U.S. output and the anticipation of continued hot weather through early July contribute to the positive sentiment. Refinitiv data shows a decrease in average gas output, while meteorologists forecast above-average temperatures across the Lower 48 states. U.S. gas demand, including exports, is expected to rise in the coming weeks.

Bullish Developments in LNG Industry

In addition, the U.S. LNG industry is set to approve a record volume of new projects this year. Three export projects capable of processing 5.1 billion cubic feet per day (bcfd) are on track for approval in the first half of 2023. This surge in LNG capacity highlights the U.S.’s position as the world’s largest LNG producer.

Short-Term Outlook:  Bullish Momentum

Overall, the natural gas market demonstrates bullish momentum as Texas faces increased electricity demand and ongoing heatwaves. Despite minor setbacks, the anticipation of hot weather, reduced output, and a growing LNG industry support positive prospects for natural gas prices in the near term.

Technical Analysis

The Natural Gas futures market is exhibing a bullish tone on Monday, although the current price of 2.729 indicates minor selling after a gap higher opening.

Trading above the 200-4H and 50-4H moving averages suggests a positive market sentiment. The 14-4H RSI reading of 64.53 indicates bullish momentum and strength.

The market is currently trading on the strong side of former resistance at 2.717 to 2.729. This could potentially become a support area. However, it is important to exercise caution as failing to hold above this level could potentially turn it into resistance once again. Traders should closely monitor price action and support/resistance levels for further market direction. Although the 4-Hour chart indicates there is plenty of room to the upside.