Natural Gas Prices Forecast: Bearish Turn Amid Warmer Weather Forecasts

Highlights

• Warmer weather forecasts push prices down
• Storage build below five-year average
• Strong overseas gas prices and exports

Natural Gas Faces a Bearish Turn Amid Warmer Forecasts

U.S. natural gas futures are taking a hit on Friday, poised to close the week on a low note. Market sentiment has turned bearish following warmer weather forecasts from both the Global Forecast System (GFS) and European Centre (EC), according to NatGasWeather. These forecasts predict seasonal demand for the next six days but hint at a bearish pattern beyond that. Furthermore, storage build data from the U.S. Energy Information Administration (EIA) has been less than anticipated, while overseas gas prices and U.S. LNG exports remain strong.

Market Reaction to Weather Forecasts and Storage Data

Earlier this week, natural gas prices held steady, thanks to a lower-than-expected storage build of 84 billion cubic feet (bcf), against the five-year average of 93 bcf. Despite this, prices have begun to retreat due to warmer weather predictions by the GFS and EC, which may cut short-term demand.

Supply and Demand Metrics

On the supply side, average gas output has increased slightly to 102.9 billion cubic feet per day (bcfd) in October, still trailing the record 103.1 bcfd in July. Demand, including exports, is expected to rise from 94.5 bcfd this week to 96.0 bcfd next week. Pipeline exports to Mexico and increased LNG exports are set to drive demand higher in the coming months.

Investor Behavior and Global Factors

Shares in the U.S. Natural Gas Fund (UNG) fell significantly, signaling that traders might be cashing in on an overbought market. Overseas, soaring European gas prices and bullish LNG exports are keeping the market somewhat buoyant. Ongoing labor disputes between Chevron and unions at LNG facilities in Australia are adding uncertainty but also bullishness in the European market.

Short-Term Outlook

Despite these supportive factors, the bearish weather forecasts are likely to play a dominant role in the short-term. Unless colder weather comes into play, or there’s a significant development in supply or global demand, the outlook for U.S. natural gas futures remains bearish.

Technical Analysis

The current daily price of natural gas at 3.267 sits above both the 200-day moving average of 2.643 and the 50-day moving average of 2.788, indicating a generally bullish trend.

However, the price is closer to minor support at 3.184 than to minor resistance at 3.406, suggesting some vulnerability. The main support and resistance levels stand at 3.002 and 3.783, respectively, further emphasizing that the market is in a more bullish territory.

Although today’s price is slightly below the previous close of 3.344, the price is still operating above key moving averages, signaling overall bullishness in the near term. However, the distance between the current price, support levels and the moving averages put the market in a vulnerable position.