Natural Gas Prices Forecast: Balancing Supply, Demand, and Weather Ahead of EIA Report

Highlights

• Gas storage levels 8% above average, impacting prices.
• Market volatility expected due to weather, demand changes.
• Short-term bearish outlook despite long-term optimism.

U.S. Natural Gas Prices Stable Ahead of EIA Report

U.S. natural gas prices are higher on Thursday in anticipation of the Energy Information Administration’s (EIA) weekly storage report. Market analysts predicted gas storage levels to be about 8% above the norm, with an expected drawdown of 8 billion cubic feet (Bcf). As of November 17, 2023, storage stood at 3,826 Bcf, down 7 Bcf from the previous week and notably higher than last year and the five-year average.

Volatility Anticipated Amid Warm Weather

NatGasWeather forecasts potential market volatility following the EIA report, with a draw range of 10 to 13 Bcf expected, less than the 5-year average draw of 44 Bcf due to warmer weather across the U.S. leading to reduced demand.

Short-Term Price Outlook

U.S. natural gas futures experienced a 1% increase on Wednesday, reaching a one-week high. This rise coincides with the introduction of a higher-priced January contract and revised demand forecasts, signaling cautious optimism in the market.

Long-term and Short-Term Outlooks

In the long-term, a rise in natural gas prices is anticipated from 2025 onwards, influenced by growing demand and the introduction of new U.S. LNG export facilities. This outlook contrasts with the current high U.S. gas production, which reached 107.7 billion cubic feet per day in November, and expectations of reduced demand due to warmer weather.

The market’s adaptation following energy crises in Europe and Asia has led to a stabilization of energy inventories. Europe’s shift from Russian pipeline gas to costlier LNG is a significant long-term transition.

In the short term, the natural gas market faces a bearish outlook, primarily due to the strong supply and the unlikely prospect of significant winter price spikes, pointing towards potential lower prices.

Technical Analysis

The natural gas market currently exhibits a cautiously bullish sentiment. The daily price of 2.847 sits just above the minor resistance level of 2.838, suggesting a potential for upward movement.

However, it’s still below the 50-day moving average of 3.065, indicating some bearish pressure in the short term. In contrast, the price is comfortably above the 200-day moving average of 2.619, reinforcing a bullish outlook in the medium term.

Approaching the main resistance at 3.002 will be a critical test; surpassing this level could signal stronger bullish momentum, while failure to breach it may lead to a pullback.