Natural Gas Prices Forecast: El Nino Looms as a New Risk for NatGas Markets

Highlights

• U.S. natural gas prices face bearish prospects amid forecasts for a milder winter, weakening demand.
• The March-April 2024 “widow maker” spread hits a record low, signaling expectations for a softer winter.
• The bearish sentiment is further compounded by the rising odds of a mild El Nino winter.

Mild Winter Forecasts Dampen U.S. Natural Gas Market

Despite a brief uptick in prices, the U.S. natural gas market is grappling with bearish undercurrents. This comes on the heels of Monday’s 3% decline in futures, as milder winter forecasts continue to dilute demand expectations. Even record exports to Mexico and a reduced gas output haven’t been enough to quell the downward pressure. Adding to this bearish sentiment is the rising possibility of a mild El Nino winter, which has market speculators wary of the months ahead.

Navigating the “Widow Maker”

The industry’s March-April 2024 spread, colloquially known as the “widow maker,” has hit a record low, signaling the market’s anticipation of a less severe winter. This directly impacts the amount of gas expected to be drawn from storage facilities, adding another layer of complexity to the market’s movements.

Shifting Supply and Demand

LSEG data reveals a subtle decline in gas output to a preliminary three-month low. Conversely, exports to Mexico have reached new heights, and LNG export plants have seen an uptick in gas flows despite ongoing maintenance. These supply and demand variables are becoming increasingly difficult to balance, making market sentiment all the more precarious.

Weather’s Role in National Demand

Meteorological data suggests a shift to near-normal weather conditions across the lower 48 states by mid-October. This forecast adjustment is expected to slightly reduce U.S. gas demand, including exports, to 94.5 bcfd next week from 94.8 bcfd this week.

Bearish Short-Term Outlook

Considering the variables at play, from mild weather forecasts and record-low “widow maker” spreads to fluctuating supply and demand metrics, the short-term market outlook for U.S. natural gas is decisively bearish. The market is bracing for lower prices as the winter season approaches, with additional downside risks looming for 2024.

Technical Analysis

The Nearby Natural Gas market presents a nuanced picture. The current daily price of 2.892 sits above both the 200-Day and 50-Day moving averages (2.738 and 2.680, respectively), indicating a bullish trend. However, it’s essential to note that the price is perilously close to the minor support level of 2.863. A breach of this could signal a turn toward the main support at 2.699.

On the upside, the trend line resistance at 2.837 has been broken, suggesting potential for further gains. Despite this, the market appears hesitant, as indicated by its proximity to minor resistance at 3.002. Given these factors, the market sentiment leans cautiously bullish.

But keep in mind that traders are still absorbing the gap that formed last week when the October futures contract rolled over to November.