Natural Gas Prices Forecast: Futures Remain Choppy Amid Weather, Output Concerns

Highlights

• Natural gas futures erase Tuesday’s gains, but still higher for the week.
• Gas prices surge 4.4% to $2.848/mmBtu; highest since August 9.
• Texas heatwave and declining inventory surplus boost late-summer demand.

Natural Gas Prices Remain Buoyant Despite Swings

Natural gas futures are experiencing a turbulent week, with prices erasing most of their gains from Tuesday yet still remaining higher for the week overall.

At 11:16 GMT, December natural gas futures are trading at $3.360, down $0.024 or -0.71%.

The commodity closed 4.4% higher at $2.848/mmBtu on Tuesday, a level not seen since August 9. Several factors are driving this uptick: A dwindling inventory surplus poised to shrink further with the upcoming EIA storage data, and a heatwave in Texas spurring late-summer cooling demand. Additionally, a drop in daily output and a rise in LNG exports following Freeport LNG’s return to full service in Texas contributed to a nearly 4% surge on Tuesday.

Oil Prices: A Mixed Influence on Natural Gas

Analysts had earlier linked the ascent in gas prices to surging oil prices, which however ended the session down by less than 1%. Despite oil’s recent recovery—up about 14% so far in 2023—natural gas prices are down approximately 37% for the year, failing to move in tandem with oil markets.

Supply and Demand Dynamics

Financial data from LSEG indicates an easing of average gas output in the lower 48 U.S. states to 102.2 billion cubic feet per day (bcfd) in September, from 102.3 bcfd in August. This comes amidst forecasts of mostly warmer than usual weather from Sept. 25-Oct. 3, likely keeping demand stable. On the demand side, LSEG predicts a minor uptick to 95.8 bcfd next week. Meanwhile, gas flows to major U.S. LNG export plants averaged 12.8 bcfd this month, reflecting an upward trend.

Market Spreads and the “Widow Maker”

Futures spreads, often used to bet on weather forecasts, showed some interesting movements. The March-April spread, notoriously called the “widow maker,” dropped to its lowest since March 2020, while the November-October spread fell to its lowest since September 2022. These spreads are often seen as indicators of trader sentiment and can signal upcoming price volatility.

Short-Term Forecast: Bullish

Despite bearish weather forecasts for the next two weeks, the natural gas market appears to be in a bullish stance. Factors such as the return of Freeport LNG flows, strong cash prices, and resilient energy markets—including oil at over $90 per barrel—suggest that natural gas prices may continue to demonstrate strength.

Technical Analysis

Given the current 4-hour price of Natural Gas at 2.746, it’s trading above both the 200-4H moving average (2.668) and the 50-4H moving average (2.691), indicating a bullish sentiment in the near term. This is further corroborated by the 14-4H RSI of 53.27, which, although only slightly, tilts towards a positive momentum.

While the price remains significantly above the main support area (2.542 to 2.487), it’s retreating following a test of the main resistance area (2.803 to 2.865).

In summary, the Natural Gas market exhibits a bullish stance on the 4-hour chart, but the resistance levels warrant vigilance. Meanwhile, support remains the moving averages. Further, the 50-4H crossover of the 200-4H is indicative of short-term strength.