Natural Gas Prices Forecast: Futures Edge Up Ahead of EIA Report

Key Points

• EIA report to reveal significant natural gas storage draw.
• Mild U.S. weather patterns lead to low gas demand.
• Production dips, Freeport LNG outage affects supply balance.

EIA Storage Report Anticipation

U.S. natural gas futures are experiencing an uptick as the market braces for the Energy Information Administration’s (EIA) weekly storage report. Expected volatility surrounds the report, with predictions pointing to a significant draw of around -200 to -203 billion cubic feet (Bcf), exceeding the five-year average of -185 Bcf. Contributing factors include varied temperatures across the U.S., with warmer conditions in the west and east and cooler temperatures from the Plains to Texas.

At 13:58 GMT, Natural Gas futures are trading $2.115, up $0.015 or +0.71%.

Weather Forecast and Demand

According to NatGasWeather, the U.S. will see an active weather pattern from February 1-7, with rain and snow impacting several regions. Temperatures will generally be mild, except for a cold burst in the Northeast. This weather scenario leads to a projection of very light national demand for natural gas in the coming week.

Recap of Recent Market Movement

Wednesday witnessed a 2% climb in U.S. natural gas futures, a rebound from a nine-month low. This increase was fueled by forecasts of cooler weather and an uptick in heating demand. Additionally, natural gas production is on a downward trend, recovering from the impacts of the mid-January Arctic freeze. This freeze had spiked gas demand, reducing U.S. gas output and affecting LNG exports. Despite these developments, warmer-than-average weather and the ongoing outage at Freeport LNG’s Texas plant are expected to keep heating demand subdued.

Supply and Output Dynamics

LSEG reports that gas output in the Lower 48 states dipped in January, with a notable decrease in daily output towards the month’s end. Meteorologists anticipate warmer-than-normal temperatures until mid-February, with a slight cooling in the week of February 4. U.S. gas demand, including exports, is forecasted to rise in the coming weeks. However, a full recovery in LNG feedgas levels is not expected until Freeport LNG resumes full operations.

Short-Term Market Outlook

In the short term, the natural gas market appears to be leaning towards a bullish trend. The anticipated draw in the EIA report, coupled with a slight increase in heating demand and the current supply dynamics, suggest a potential uptick in natural gas prices. However, the overarching warmer weather and subdued LNG export levels due to the Freeport LNG outage could limit significant bullish momentum.

Technical Analysis

Natural gas futures are edging higher after crossing to the strong side of the 50-day moving average at $2.752. Although this move could lead to increased short-term momentum, buyers could struggle to overcome the latest top at $2.347. The major resistance is the 200-day moving average at $2.515. This is controlling the longer-term direction.

A failure to hold above the 50-day moving average will be a sign of weakness with $1.887 and $1.774 the next potential downside targets.