Natural Gas Prices Forecast: Cautious Outlook Amid Record Production, Mild Forecasts

Highlights

• Slight increase signals potential short-term bottom
• Mild weather forecasts limit demand, impact futures
• Record production and high storage levels curb price spikes

U.S. Natural Gas Futures Show Tentative Signs of Recovery

Early Tuesday trading saw U.S. natural gas futures slightly increase, indicating a potential short-term bottom in the market. This inside move, however, should not be mistaken for a trend reversal. The current rise is primarily attributed to oversold conditions easing selling pressure.

Weather Forecasts and Demand Trends

The market’s focus is on weather forecasts, which significantly influence natural gas demand. According to NatGasWeather, recent trends suggest a colder shift, potentially increasing demand. Despite this, the overall 15-day outlook remains bearish, with expectations of mild weather limiting heating requirements. The southern U.S. is forecast to experience comfortable temperatures, translating to very light national demand in the coming week.

Monday’s Decline and Storage Surplus Impact

Monday witnessed a more than 5% drop in U.S. natural gas futures, hitting a two-month low. This decline was fueled by record production levels and forecasts for mild weather, reducing heating demand. Analysts predict that gas stockpiles will be approximately 7.2% above the norm for this time of year as of December 1, impacting futures pricing.

Production and Supply Outlook

The U.S. has seen record natural gas output, with November production in the Lower 48 states reaching a historic high. This surge in production, combined with high storage levels, suggests limited scope for significant price spikes this winter. Energy firms continue to add rigs, hinting at sustained or increased production levels.

Short-term Forecast: Cautiously Bearish with Weather Dependency

The short-term outlook for U.S. natural gas futures remains cautiously bearish, heavily dependent on weather changes. With record production and substantial storage, only a significant shift to colder weather could drive prices higher. We cannot emphasize the need for colder weather to reduce the storage surplus and potentially increase prices. Natural gas is going to have a hard time getting over the $3.00 level this winter if we don’t get meaningful cold weather in December or January.

Technical Analysis

The current market sentiment for natural gas appears cautiously neutral with a slight bullish inclination on the daily chart. The daily price of 2.718 is positioned above the 200-day moving average of 2.624, indicating a potential bullish trend in the longer term. However, it’s below the 50-day moving average of 3.071, reflecting some short-term bearish pressure.

The price is currently hovering just above the minor support level of 2.690, suggesting that this level may serve as a short-term floor.

With the main support set at 2.590 and minor resistance at 2.838, there’s room for upward movement if the price can maintain above its minor support.

The market seems to be in a delicate balance, where a break above the minor resistance could strengthen the bullish sentiment, while a drop below the main support might signal a bearish shift.