Natural Gas Prices Forecast: Bearish Tone Grips US Futures Amid Warmer Forecasts

Key Points

• Over 13% losses this week due to warmer weather expectations.
• Decreased gas flows to LNG export facilities, impacting prices.
• Short-term forecast remains bearish with warmer weather and increased production.

Bearish Outlook Amid Warmer Weather and Supply Surge

U.S. natural gas futures are facing a challenging week, with a bearish outlook prevailing. The market witnessed a sharp decline, plummeting 13% in a single session to reach a one-week low. The main factors contributing to this downturn are expectations of warmer-than-normal weather by late January, which is likely to reduce demand, and an increase in gas production.

At 12:45 GMT, Natural Gas Futures are trading $2.783, down $0.117 or -4.03%.

Demand vs. Supply

The decrease in gas flows to U.S. liquefied natural gas (LNG) export facilities, reaching a three-month low, further weighed on prices. However, spot power and gas prices surged to multi-year highs due to extremely cold weather, temporarily boosting demand. This surge in prices last week was a reaction to cold weather fears.

Future Projections

Looking ahead to February, the market anticipates improved production and sufficient gas in storage to meet normal weather conditions without significant price spikes. Front-month gas futures for February delivery on the New York Mercantile Exchange plunged 12.5% on Tuesday, marking the biggest daily drop since March 2023.

Short-Term Forecast – Bearish

Meteorologists project a shift to warmer-than-normal temperatures in late January, maintaining a bearish outlook for the near term. This anticipated warmer weather, coupled with rising gas production and lower LNG demand, suggests that the current decline in natural gas futures may persist.

In summary, U.S. natural gas futures face bearish pressure due to the expectation of warmer weather, increased production, and decreased LNG demand. While short-term fluctuations may occur, the overall outlook points towards a bearish trend in the natural gas market.

Technical Analysis

The Natural Gas market’s position below the 200-day moving average of 3.076 underscores its weakened state, reinforcing the bearish sentiment. This placement, significantly below the longer-term average, indicates a lack of bullish momentum over an extended period.

With the current price at 2.790, not only is the market struggling to approach the 200-day average, but it is also teetering just above the 50-day moving average at 2.758. This scenario paints a picture of a market in a precarious position, with immediate support from the 50-day average under threat.

The confluence of the minor support and resistance at 2.874 acts as a near-term pivot point, but the underlying weakness indicated by the market’s position relative to the 200-day moving average suggests a potential for further downside, especially if the 50-day average fails to hold as support.