Natural Gas Prices Forecast: Facing Bearish Demand Shifts Amid Weather Changes

Highlights

• Natural gas demand expected to dip despite scorching heat.
• Gas output in August nearly matches May’s 102.2 bcfd record.
• Supply to US LNG plants down; July’s 12.7 bcfd shrinks to 12.4 bcfd in August.
• Bearish short-term outlook for natural gas.

Overview

US natural gas futures slipped further on Wednesday, mirroring the downturn from the prior session. Despite the expected surge in demand due to the scorching heat, the market seems to have priced in the anticipated high-to-very-high demand conditions through to around August 23.

Demand and Output Analysis

Forecasts have shown a dip in demand moving into the subsequent week, while gas output remains steady. Refinitiv, a leading data provider, highlighted that gas demand, inclusive of exports, would edge up from 103.1 billion cubic feet per day (bcfd) this week to 104.4 bcfd in the next. However, this demand forecast is notably diminished from Monday’s outlook. Gas output, on the other hand, has been consistent at 101.8 bcfd for both July and the ongoing month of August, closely trailing the record of 102.2 bcfd set in May.

Supply Situation

Diving deeper into supply metrics, gas flow to major US LNG export plants saw a dip from 12.7 bcfd in July to 12.4 bcfd this August. This is primarily attributed to production cuts at LNG facilities in Louisiana and Texas. In contrast, European gas prices experienced a hike, with potential strikes looming at Australian LNG facilities, which manage close to 11% of the global LNG exports.

US as a Key Player in LNG Exports

The US is gearing up to be the leading LNG supplier by 2023, outperforming present frontrunners Australia and Qatar. Global price escalations have intensified the demand for US exports, driven largely by supply disruptions and the Ukraine-related sanctions. The shift in US LNG export destinations is evident: In 2022, 69% targeted Europe, a spike from the 35% in 2021, as exporters sought better prices. However, with Asian prices on the rise, a shift in export focus to Asia is anticipated, potentially leading to market volatility.

Short-term Forecast

Considering the imminent peak in demand and the changing dynamics of supply and exports, the natural gas market exhibits a bearish short-term outlook. The balance between Asian and European demands for US LNG may be a crucial determinant for price movements in the coming weeks.

Technical Analysis

The current price of 2.633 represents a decline from the previous 4-hour price of 2.666. When comparing the current price to the 200-4H moving average of 2.672, the market is trading slightly below it, suggesting a possible bearish momentum. Moreover, the price is also below the 50-4H moving average of 2.756, further reinforcing the bearish sentiment. The 14-4H RSI stands at 34.77, indicating that the commodity is nearing an oversold condition.

Additionally, the current price is hovering above the main support area of 2.542 to 2.487 but is significantly below the main resistance area of 3.027 to 3.091. Collectively, the market exhibits a bearish sentiment.