Natural Gas Forecast: Stuggling with Mixed Weather Outlook, LNG Maintenance

Highlights

• Natural gas prices show slight increase amidst mixed weather outlook.
• Maintenance at LNG export plants impacts gas flow and prices.
• Record-breaking power demand in Texas drives gas consumption for cooling.

Overview

Natural gas futures are up slightly on Friday following weakness in the previous session. Traders are closely monitoring weather patterns as they consider their positions heading into the weekend.

Mixed Weather Capping Gains

NatGasWeather predicts warm to hot high-pressure systems dominating the southern, western, and eastern parts of the United States, with temperatures ranging from the upper 80s to 100s, resulting in strong demand. However, the Great Lakes and Ohio Valley regions are expected to experience comfortable weather with showers and temperatures ranging from the upper 60s to 80s.

The mixed weather outlook has led to both support and resistance for natural gas prices, resulting in a sideways-to-lower trading pattern. Despite expectations of sustained hot temperatures, prices are struggling to gain momentum due to the mostly comfortable temperatures in heavily populated areas such as the Midwest and East Coast.

Pressured by Forecasts of Less Hot Weather, Low LNG Demand

On Thursday, U.S. natural gas futures dropped approximately 3%, reaching a three-week low. This decline was influenced by forecasts of less hot weather and ongoing maintenance at liquefied natural gas (LNG) export facilities, resulting in reduced gas flow to these plants. Despite these factors, last week’s storage build was slightly smaller than expected, daily output declined, and there were forecasts of continued hot weather and high cooling demand in Texas throughout July.

Texas Continues to Break Demand Records

Texas, heavily reliant on gas-fired plants for electricity, experienced record-breaking power demand due to extreme heat. This demand surge increases the amount of gas burned to produce power for cooling purposes.

EIA Reports Smaller-Than-Expected Build

The Energy Information Administration reported that utilities added 49 billion cubic feet (bcf) of gas into storage during the week ending July 7, slightly below expectations but influenced by increased gas consumption for air conditioning.

Output Drops, Cooling Demand Rises

The average gas output in the U.S. Lower 48 states has increased in July, but daily output saw a decline over the past six days due to decreases in Pennsylvania, Texas, and North Dakota. However, preliminary data is subject to revision.

Meteorologists anticipate hotter-than-normal weather conditions in the Lower 48 states until at least July 28, leading to an expected rise in gas demand, including exports. Gas flows to major LNG export plants have increased compared to June but remain below the monthly record due to ongoing maintenance at various facilities.

Short-Term Outlook:  LNG Maintenance Preventing Rally

In summary, natural gas futures are experiencing mixed trading due to conflicting weather patterns and ongoing maintenance at LNG export plants. While hot temperatures persist in certain regions, comfortable temperatures in densely populated areas are tempering price gains. Traders will closely monitor weather forecasts and LNG facility operations as they assess the short-term direction of the market.

Technical Analysis

Natural gas prices in the market are showing mixed sentiment. The current 4-hour price is slightly higher than the previous close, indicating some upward momentum. The price is above the 200-4H moving average, suggesting potential strength and a bullish outlook. However, it is below the 50-4H moving average, indicating some weakness and a bearish undertone. The 14-4H RSI sits at a neutral level, further supporting the mixed sentiment.

The market is currently testing the main support area, which could result in a potential bounce or consolidation. Traders should closely monitor price action and the support and resistance levels to assess the market’s direction accurately.

Look for support on the first test of the 200-4H moving average at 2.520, but be prepared for a major shift in sentiment if it fails to hold.