Natural Gas Prices Forecast: Bearish Outlook Looms as Supply Overwhelms Demand

Highlights

• Record high output of 103.6 bcfd in October
• Cooler weather fails to boost demand
• Bearish sentiment dominates

Supply Outlook: Record Highs Amid Low Prices

US Natural Gas futures have been on a downward trajectory, hitting a ninth consecutive session of losses early Monday as prices near the September 26 bottom at $2.796. Supply factors contributing to this trend include record output levels and ample storage.

Data from financial firm LSEG reveals average gas output in the Lower 48 U.S. states has risen to a record high of 103.6 billion cubic feet per day (bcfd) in October.

Meanwhile, gas flows to major U.S. LNG export plants have also risen to 13.6 bcfd so far this month, signaling a robust supply situation.

Demand Outlook: Cooler Weather Fails to Stoke Demand

Despite seasonally cooler weather forecasts through early November, which usually spikes heating demand, the market has been unresponsive. LSEG forecasts a dip in U.S. gas demand, easing from 97.6 bcfd last week to 96.9 bcfd this week due to milder weather before making a recovery to 105.0 bcfd in two weeks. On top of this, next-day prices at the Henry Hub benchmark in Louisiana were down about 3%, further suppressing demand.

Market Dynamics: Arbitrage and Geopolitical Factors

Market dynamics also offer a grim picture. Lower spot or next-day prices at Henry Hub have created a bearish atmosphere for most of this year. Traders can lock in arbitrage profits by buying spot gas, storing it, and selling a futures contract, a situation that has prevailed for 166 out of 201 trading days this year. Moreover, pipeline exports to Mexico have slid, though analysts expect a rebound once New Fortress Energy’s Altamira plant starts operations in November.

Short-Term Outlook: Bearish Sentiments Prevail

Given the current supply glut coupled with unresponsive demand, the short-term market outlook for US Natural Gas futures remains decidedly bearish. Investors should tread cautiously amid a landscape filled with abundant supply and underwhelming demand indicators.

The multiple record lows and high supply metrics indicate a bearish market sentiment, encouraging traders and investors to approach the natural gas market with caution in the short term.

Technical Analysis

The current daily price of natural gas futures at 2.886 is above both the 200-day moving average of 2.604 and the 50-day moving average of 2.815. This indicates a generally bullish sentiment, as the asset is trading above both long-term and short-term averages.

The price is also situated between the minor support and resistance levels of 2.838 and 3.002, respectively, suggesting that the market is currently consolidating.

The overarching market sentiment appears to be cautiously bullish, but traders would do well to watch the minor support for a breakout to the downside.

A failure to hold both the support and the 50-day moving average will shift momentum to the downside.