Natural Gas Forecast: Strengthening Ahead of Key Weekly EIA Storage Report

Highlights

• Natural gas traders focused on the upcoming storage report.
• Weather conditions and heatwave expectations influence demand outlook.
• Supply fluctuations and maintenance activities affect natural gas prices.

Overview

Natural gas is showing strength on Thursday ahead of the government’s weekly storage report. Traders disregarded earlier weather forecasts that predicted a delay in the anticipated heatwave, which had dampened demand expectations.

The morning Energy Information Administration (EIA) storage report is anticipated to be a key driver for the market. Survey averages suggest a build of around +93-95 billion cubic feet (Bcf), slightly surpassing the 5-year average of +84 Bcf.

Weather conditions varied across regions, with cooler temperatures prevailing in the southern and eastern United States while the Northwest and Midwest experienced above-normal heat. Despite this, expectations point to a build of +95-96 Bcf, with a potential downside risk due to last week’s record-low wind energy generation.

Short-Term Weather

According to the latest update from NatGasWeather for June 15-21, an active weather pattern persists in the United States, characterized by the movement of weather systems, showers, and thunderstorms. In most areas, temperatures are expected to remain moderate, ranging from the 60s to 80s, resulting in relatively light demand. However, the Southwest, Texas, the South, and Florida will face hot weather with temperatures reaching the 90s to 100s, leading to regionally strong demand.

Texas Prepares for Record-Breaking Heat

On Wednesday, natural gas prices remained steady despite conflicting factors affecting supply and demand. Reduced U.S. output and lower Canadian exports provided support, countering reduced liquefied natural gas (LNG) demand and a delayed onset of hot weather. The mild weather conditions kept heating and cooling demand in check, contributing to stable prices. However, Texas prepared for record-breaking electricity usage as a summer heatwave loomed. Notably, historic volatility reached its lowest level since April 2022.

LNG Gas Flows Drop

In terms of supply, gas output in the Lower 48 states decreased in June, settling at 102.0 billion cubic feet per day (bcfd), with preliminary data indicating a potential decline to 99.5 bcfd. Maintenance work on the Texas Gas Transmission pipe and wildfires impacting Canadian exports contributed to supply fluctuations. The anticipated heatwave, initially expected for June 22, was pushed back to June 23, resulting in lowered demand forecasts. Furthermore, gas flows to major LNG export plants were affected by maintenance, averaging 11.7 bcfd in June. On Tuesday, the volume of gas flowing to these plants dropped to 10.9 bcfd, the lowest level since December 2022.

Short-Term Outlook:  Weather Supportive Ahead of EIA Data

Market participants will closely monitor supply and demand dynamics, weather patterns, and the impact of maintenance activities on natural gas prices. Despite the mixed factors at play, U.S. natural gas futures maintain a balanced short-term outlook, reflecting the intricate interplay between various market influences.

Technical Analysis

Natural gas is edging higher on Thursday, signaling a resumption of the month-long rally.  Holding above the PIVOT at $2.190 will be a sign of strength.

If this move creates enough upside momentum then we could see a near-term rally into $2.465 (R1). Traders have been waiting for a bullish catalyst and from the reaction, it looks as if the hot weather in Texas is it.

A sustained move under $2.190 will signal a resumption of the downtrend with $2.036 the next target.

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