Natural Gas Forecast: Volatile Week Ahead as Weather Market Continues

Highlights

• Prices closed lower after reaching March highs.
• Ongoing heat wave drives increased power usage and gas consumption in Texas.
• Inflation data and supply dynamics influence market sentiment.

Overview

Natural gas futures in the United States experienced a volatile week, with prices closing lower after reaching their highest level since March on June 26. The initial increase was fueled by a surge in gas flow to liquefied natural gas (LNG) export plants. However, prices eased as weather services predicted a slight cooling trend in Texas. Monday’s early weakness hinted at a possible bearish shift in the weekend’s weather forecasts.

Volatility Fueled by Texas Temperature Swings

In Texas, power usage remained high throughout the week due to an ongoing heat wave that gripped the state. The extreme heat led to increased gas consumption, particularly for air conditioning purposes and power generation. Gas-fired plants accounted for nearly half of Texas’ electricity production in 2022. The persistent heat wave drove power usage to new records, with Tuesday setting a fresh milestone.

Mild Inflation Outlook has Positive Effect

Another factor influencing the natural gas market was the release of new inflation data by the U.S. Commerce Department. The data indicated lower inflation, which could potentially delay anticipated interest rate hikes by the Federal Reserve (Fed). This news had a positive impact on the market as it suggested reduced borrowing costs and supported demand for energy.

Refinitiv Predicts Lower Demand

Turning to supply and demand dynamics, data provider Refinitiv reported a decrease in average gas output in the U.S. Lower 48 states in June compared to May. However, daily output was expected to rebound and potentially reach a preliminary two-week high by the end of the week. Meteorologists forecasted hotter-than-normal weather across the Lower 48 states until at least mid-July, which could drive increased gas demand, including exports. Nevertheless, demand is projected to ease slightly in the following weeks as temperatures moderate.

LNG Exports Down in June

LNG exports faced some challenges in June, with flows to major U.S. export plants declining due to maintenance activities. However, daily feedgas to LNG export facilities surged to a four-week high, driven by increased gas flow to Sabine Pass in Louisiana. Despite recent fluctuations, average feedgas to Sabine in 2023 remained consistent with 2022 levels.

Weekly Storage Build Constructive

Additionally, the U.S. weekly natural gas storage data for the week ending June 30 showed a build of 76 billion cubic feet (Bcf), bringing the total natural gas in storage to 2,878 Bcf.

Weather Driven Volatility Predicted

Overall, the natural gas market witnessed volatility as it remained influenced by weather conditions. Traders and investors closely monitored the supply and demand outlook, with weather forecasts, inflation data, and storage levels playing significant roles in shaping market sentiment.

In terms of a short-term forecast, the natural gas market could experience continued volatility as weather patterns, inflation data, and supply dynamics remain key factors to watch. Traders should pay attention to the evolving weather forecasts, potential shifts in inflation expectations, and any updates regarding gas supply and demand.

Technical Analysis

The Natural Gas market is showing relatively neutral sentiment as the current 4-hour price sits at 2.746, slightly higher than the previous close. The price remains above both the 200-4H and 50-4H moving averages, indicating a positive trend. The 14-4H RSI is at 51.17, reflecting balanced momentum without extreme overbought or oversold conditions.

The market is currently consolidating within the main support area of 2.681 to 2.717 and the main resistance area of 2.998. Traders should closely watch for potential breakouts or significant movements beyond these levels to determine the market’s next direction. Trader reaction to 2.690 – 2.681 is likely to set the tone on Monday.