Natural Gas Prices Forecast: Futures Gap-Lower on Warm Weather Forecast

Highlights

• Futures fall as warm weather limits demand.
• LNG exports contrast with ample storage levels.
• Trading strategies yield mixed results for energy firms.

Overview

US Natural Gas futures kicked off the week on a bearish note, opening with a gap lower as the market braced for a potential dip to one-week lows. The driving force behind this downward pressure is a forecast for milder weather, which diminishes the demand for heating fuel.

Supply Dynamics and Weather Impact

Despite a slight uptick in the US natural gas rig count, the warmer weather forecast for most parts of the US threatens to suppress heating demand into mid-November. This outlook comes on the heels of a price boost last Friday, spurred by the anticipation of colder weather and robust flows to LNG export plants. However, the current abundance of gas in storage, sitting at 6% above the seasonal average, is likely to cap any price rallies.

Demand Outlook

The demand for natural gas is taking a back seat as weather models from NatGasWeather predict above-average temperatures across the US. This expected drop in heating requirements converges with a reported increase in LNG exports and record production levels, painting a complex picture of the natural gas market’s supply and demand dynamics.

LNG Trading Strategies

Contrasting trading strategies among energy giants have emerged, with Shell and TotalEnergies reaping the rewards of increased Asian LNG demand, while BP’s focus on the Atlantic basin backfired amid full inventories and subdued demand. The absence of market volatility, especially in US and European markets stocked with high inventory levels, has been a critical factor in trading performance.

Short-term Forecast

The natural gas market’s outlook seems bearish in the short term. The gap lower at the week’s start points to investor caution, as the impact of high inventory levels and the looming threat of reduced heating demand weigh on market sentiment. Without significant drivers to stimulate volatility or demand, the path of least resistance for prices appears to be downward.

Technical Analysis

The current trading price of natural gas below both the 200-day and the 50-day moving averages signals a bearish outlook, indicating that the market is in a potential downtrend in both medium and longer-term views.

With the price now positioned between the main support and minor resistance levels, it’s evident that the market sentiment is cautious, with investors likely watching to see if the price will stabilize or continue to decline.

This positioning suggests a testing phase is underway, with the potential for further downside if the main support level does not hold.