Natural Gas Forecast: Strong Demand Driving Rally Ahead of EIA Modest Build

Highlights

• Natural gas futures rise ahead of storage report, reflecting market movements.
• Weather outlook influences demand, with high temperatures and cooler trends observed.
• Maintenance work and revised demand forecasts impact natural gas futures.

Overview

Natural gas futures are on the rise ahead of the release of the weekly government storage report, indicating potential market movements in the energy sector. The US Energy Information Administration (EIA) is expected to report a build of 45 Bcf, slightly lower than the previous week’s build of 49 Bcf and higher than last year’s build of 35 Bcf. This aligns with the five-year average build of 45 Bcf. Currently, the US total natural gas in storage stands at 2,930 Bcf, surpassing last year’s amount of 2,396 Bcf and the five-year average of 2,611 Bcf. The storage levels are 14.2% higher than the five-year average, reflecting strong market conditions.

Crucial Weather Trends Impact Demand

The weather outlook plays a significant role in natural gas demand. The overnight weather data indicates widespread heat across the US, with temperatures ranging from the upper 80s to 110s, resulting in high demand for natural gas. However, there have been recent trends of cooler weather, particularly in the 10-16 day period leading up to forecast days 3-9. As we approach July 25-31, it is crucial to closely monitor the weather models for any potential changes.

High Pressure, Hot Temperatures Ahead

Looking ahead to July 20-25, NatGasWeather predicts high-pressure systems dominating the southern, western, and eastern parts of the US, with temperatures ranging from the upper 80s to 110s, particularly in California and Texas. The East Coast can expect highs in the mid-80s to 90s. The Great Lakes/Ohio Valley region will experience more comfortable weather with showers and temperatures in the 70s and 80s. These conditions contribute to strong national demand for natural gas.

Low LNG Export Demand Capping Gains

Despite forecasts indicating hotter-than-normal weather in Texas and a record-breaking power demand, US natural gas futures experienced a slight decline of about 1% on Wednesday. This is attributed to revised demand forecasts, which suggested lower-than-expected demand for the current week. Additionally, ongoing maintenance work at various US liquefied natural gas (LNG) export plants has resulted in slower growth in gas flow to these facilities.

Short-Term Outlook:  Momentum Shifting Upward

In conclusion, natural gas futures are experiencing upward momentum ahead of the government storage report. Storage levels are above average, and the weather outlook points to strong demand, particularly in regions experiencing high temperatures. While recent forecasts have indicated slightly reduced demand and maintenance work at LNG export plants, the record-breaking power demand in Texas emphasizes the significance of gas-fired plants in meeting electricity needs during heatwaves. Traders and investors should closely monitor these factors for potential bullish or bearish signals in the natural gas market.

Technical Analysis

Natural Gas market sentiment remains bullish as the current 4-hour price of 2.721 exceeds the previous close of 2.662. The commodity’s price is above both the 200-4H and 50-4H moving averages, indicating a positive trend. The 14-4H RSI at 71.14 suggests strong momentum, though caution is advised for potential overbought conditions.

The market is currently approaching the resistance level. Overall, traders should monitor price action for potential reversals but maintain a bullish outlook based on the provided technical indicators.