Natural Gas Forecast: Surging Demand: Hotter Forecast Boosts Natural Gas Prices

Highlights

• Hotter weather trend drives up natural gas prices.
• Texas experiences impressive heat, raising concerns for natural gas demand.
• Cautious investor sentiment persists despite high temperatures in Texas.

Weather Trend Boosts Natural Gas Prices: Hotter Forecast Drives Overnight Trade

Natural gas prices are higher in the overnight trade as both the GFS and EC weather models indicated a trend of 5 Cooling Degree Days (CDDs) hotter. Despite a recent cooling trend in weather data for June 14-20, Texas and surrounding states are expected to experience impressively hot temperatures in the 90s to 100s, leading to strong demand in the foreseeable future.

Impressive Heat in Texas Raises Demand Concerns for Natural Gas

An active weather pattern continues across the US this week, with showers and thunderstorms, except for the Southwest, Texas, the South, and Florida, where a hot ridge will result in regionally strong demand due to high temperatures ranging from the 90s to 100s.

Cautious Investor Sentiment Persists

Investors remain cautious about a near-term rebound in US gas prices due to persistently high inventories, despite a slowdown in drilling and the reopening of Freeport LNG’s export terminal. Hedge funds and other money managers have sold a significant amount of gas contracts, resulting in a net short position of 79 billion cubic feet, reflecting a cautious sentiment among market participants.

Surplus Inventories and Maintenance Work Hamper Price Rebound

Currently, working gas stocks are +282 billion cubic feet. This is 12% above the prior ten-year seasonal average as of June 2. This surplus has not shown any signs of narrowing for the past three months. Gas prices, adjusted for inflation, are near their lowest levels in three decades. This suggests potential upside risks in the medium term. However, funds are finding it challenging to become bullish until there are clear indications of excess inventories being depleted. As a result, prices are struggling.

Decline in Gas Prices Despite Canada’s Wildfires and Maintenance at LNG Plants

US natural gas prices declined about 1% to a one-week low on Monday, despite a drop in gas exports from Canada due to wildfires and low gas flow to US liquefied natural gas (LNG) export plants caused by maintenance work. The mild weather this year has resulted in low heating and cooling demand, reducing historical volatility to its lowest level since April 2022.

Mild Weather and Historical Volatility Impact Natural Gas Prices

Looking ahead, meteorologists project that the weather in the Lower 48 states will remain mostly normal until June 20, followed by hotter-than-normal temperatures from June 21-27. As a result, Refinitiv forecasts an increase in US gas demand, including exports, from 93.1 billion cubic feet per day (bcfd) this week to 97.9 bcfd next week.

Although gas flows to major US LNG export plants have decreased due to maintenance, the warmer weather outlook suggests potential demand growth. The recent average gas output in the US Lower 48 states for June is slightly lower than the previous month’s record, and the flow of gas from Canada to the US has experienced fluctuations due to wildfires.

Looking Ahead: Weather Outlook and Potential Demand Growth

In summary, natural gas prices rose due to a hotter weather trend, while caution persists regarding a near-term rebound. High inventories and ongoing maintenance at LNG export plants present challenges for price increases. However, with expected hotter weather and increased gas demand in specific regions, the short-term outlook may lean towards a more bullish sentiment.

Technical Analysis

Natural gas is trading higher on Tuesday, sustaining a rally over the PIVOT at $2.190 for a second session.

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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