Natural Gas Forecast: Subdued Outlook as US Gas Demand Battles Rising Output

Highlights

• Natural gas futures edge higher ahead of EIA storage report.
• Record power demand in Texas due to persistent heatwave.
• Neutral short-term outlook, prices expected to remain range-bound.

Overview

US natural gas futures are edging higher on Thursday as traders brace for the weekly government storage report. Following a test of its lowest level since June 15, a fall propelled by a decrease in demand over the upcoming two-week period and a surge in output, futures are now pushing upwards. Even though the price drop persists, forecasts predict the continuation of the heatwave, particularly in Texas, until mid-August.

Contrary to expectations, the record high temperatures and unparalleled power generation demand have failed to instigate a rally in the market. This is due to robust production numbers within the US. A slight movement upwards is predicted, but no substantial shift in either direction is expected despite the escalating power demand in Texas. For the third day in a row, the power demand in Texas marked a record high, which is likely to be exceeded this Thursday and in the coming week as citizens seek respite from the incessant heatwave.

Supply and Demand Dynamics

Refinitiv data shows that the average gas output in the Lower 48 states increased marginally to 101.7 billion cubic feet per day (bcfd) in July from 101.0 bcfd in June. Despite being slightly lower than May’s record 101.8 bcfd, mainly due to pipeline maintenance, daily output seems to be on a downward trajectory, likely to drop by 1.6 bcfd to 100.4 bcfd on Wednesday.

However, weather forecasts indicate persistently higher-than-normal temperatures in these states till at least August 16. Therefore, Refinitiv predicts a slight increase in US gas demand, from 104.9 bcfd to 105 bcfd next week, due to rising air conditioning demand. Concurrently, gas flows to the seven major US liquefied natural gas (LNG) export plants rose to an average of 12.7 bcfd in July from 11.6 bcfd in June.

Short-term Forecast

Despite the impressively hot forecasts for the upcoming 11-16 days, NatGasWeather anticipates a cooler trend over time. This prediction aligns with the observed pattern of days 11-16 proving ultimately cooler than initially anticipated.

The Energy Information Administration (EIA) will release its weekly storage report today, expected to demonstrate an 18 Bcf build, slightly more than the previous week’s 16 Bcf. The recent EIA report showed a rise in US natural gas supplies in storage by 16 billion cubic feet for the week ended July 21. Given the demand-supply dynamics, the short-term outlook for US natural gas appears to be neutral, with prices expected to remain range-bound.

Technical Analysis

Natural Gas is exhibiting a bearish tone, as the current 4-hour price is below both the 200-4H and 50-4H moving averages, signifying that sellers are controlling the market in the short term. The 14-4H RSI at 38.40 indicates weak momentum but is not oversold, which further aligns with the bearish outlook.

The current price is within the main support area, but near its lower boundary, suggesting potential downward pressure. Overall, the technical indicators collectively paint a picture of a market that is leaning towards the bearish side, with caution needed for a potential reversal to the upside.