Natural Gas Prices Forecast: EIA Storage Expected to Outpace 5-Year Average

Highlights

• NatGasWeather predicts a build of +84 Bcf, above the 5-year average.
• Upcoming cold weather likely to significantly boost heating demand.
• By 2023, the U.S. is set to emerge as the world’s leading LNG supplier.

Natural Gas Storage and Outlook

Natural gas futures remained stable as market participants anticipate the release of the government’s weekly storage data. Forecasts suggest an increase in storage, with NatGasWeather predicting a build of +84 Bcf, slightly more than the survey average of +79-82 Bcf, and notably above the 5-year average build of +66 Bcf. The U.S. Energy Information Administration (EIA) will report its figures at 14:30 GMT.

Market Dynamics and Speculation

Wednesday saw U.S. natural gas futures surge by approximately 1%, marking a week’s high. This uptrend can be attributed to the looming colder weather, increased heating demand, and bullish price speculations from the options market. The front-month gas futures for November on the NYMEX experienced a substantial increase, drawing closer to the significant $3 per mmBtu level. Market dynamics suggest a drive by certain firms to keep the November front-month over $3 per mmBtu as the options expire.

Volatility and Spot Prices

Historic daily volatility witnessed peaks and troughs, reaching an all-time high in February 2022 and dropping to its lowest in September 2021. A contributing factor to the suppression of futures price gains has been the decreasing spot prices at the Henry Hub benchmark in Louisiana, which has predominantly been trading below front-month futures this year.

Supply, Demand, and Exports

October saw an elevation in the average gas output in the Lower 48 U.S. states. With winter approaching, it’s anticipated that the cooler season will drive demand. LSEG’s predictions show an increase in U.S. gas demand for the upcoming week. Exports to Mexico are expected to ascend once the New Fortress Energy’s Altamira plant begins operations in November.

Forecast

Considering the imminent cooler weather and rising demand, the short-term perspective for natural gas appears bullish. The U.S. is poised to emerge as the top global LNG supplier by 2023. The European and Asian markets mirror this optimistic outlook, with gas prices hovering around $16 per mmBtu in Europe and $18 per mmBtu in Asia. The international arena, especially supply disruptions linked to the Ukraine situation, is set to play a pivotal role in influencing U.S. exports.

Technical Analysis

The current daily price of natural gas stands at 3.015. It trades above both the 200-day moving average of 2.593 and the 50-day moving average of 2.835, showcasing bullish momentum in both the short-term and long-term perspectives.

The asset’s position above these key moving averages is a positive sign for traders and suggests sustained upward strength. Furthermore, the price is closely hugging the minor support at 3.002, suggesting a potential pivot point.

With minor resistance at 3.184 and a stronger ceiling at 3.434, any upward movement can face these challenges. Conversely, the main support level at 2.838 acts as a crucial floor for prices in case of a reversal.

Given these dynamics, the overall sentiment leans bullish.