Natural Gas Prices Forecast: Bearish Amid Production, Weather Forecasts Ahead of EIA Data

Highlights

• Record 2022 gas production at 98.1 bcfd; forecasted 104.9 bcfd by 2024.
• Texas summer heat spiked August prices; September sees slight dip.
• Mild winter could push prices below $2 per mmBtu in early 2024, according to Bank of America. 
• EIA weekly storage report expected to show a 65 Bcf build

Overview

U.S. natural gas futures are unchanged early Thursday as traders looked toward the impending Energy Information Administration (EIA) weekly storage report due to be released at 14:30 GMT. The report is expected to show a build of 65 Bcf.

At 11:25 GMT, December natural gas futures are trading $3.309, down $0.007 or -0.21%.

Supply and Demand Dynamics

U.S. natural gas production in 2022 achieved a record 98.1 billion cubic feet per day (bcfd), with a forecasted increase to 104.9 bcfd by 2024. Despite this rise, soaring temperatures during the Texas summer led to unprecedented power demand, briefly causing a spike in natural gas prices in August. However, the output in the lower 48 U.S. states slightly dipped to 102.2 bcfd in September, marking a decline from its peak in August. Fluctuations in gas flows to major U.S. LNG export plants have been noted, with a one-week low of 12.4 bcfd due to maintenance activities at the Cove Point LNG export plant.

Weather and Its Impact

NatGasWeather highlighted a mix of warm and comfortable conditions across the U.S. for the week of Sep 21-27, which is expected to result in low national gas demand. Additionally, forecasts for the lower 48 states suggest near-normal weather patterns persisting until late September, followed by a slightly warmer phase. This milder weather outlook, combined with seasonal changes, may reduce the U.S. gas demand from 95.6 bcfd this week to approximately 94.5 bcfd the following week.

Bank of America’s Take

Bank of America cautioned that although the Texas heatwave considerably reduced the U.S. gas storage surplus, a mild winter might lead to a significant inventory rise, potentially pushing prices below $2 per mmBtu in early 2024. They mentioned the potential downside risks to their $4 per mmBtu projection for the same year, emphasizing that high storage could challenge their forecast of $3.50/mmbtu for late 2023 and early 2024.

Short-Term Forecast:  Bearish

Given the mixed influences of production, weather forecasts, and potential storage highs, the short-term outlook for the natural gas market is bearish. Traders should keep an eye on weather patterns, storage data, and production levels to gauge potential price movements.

Technical Analysis

The current 4-hour price of 2.705 is slightly below the previous 4-hour price of 2.719, indicating a minor pullback. When compared to the 200-4H moving average of 2.673, the price is currently above, suggesting an overall upward trend. However, it’s slightly below the 50-4H moving average of 2.707, hinting at a possible short-term consolidation or a minor bearish momentum. The 14-4H RSI reading of 45.59 denotes weakened momentum but is still not in the oversold territory.

The current price is hovering between the main support area (2.542 to 2.487) and the main resistance area (2.803 to 2.865), implying it’s in a consolidation phase. Given the proximity to both moving averages and the RSI reading, the market sentiment leans neutral to slightly bearish.