Natural Gas Prices Forecast: Futures Surge Amid Cold Snap, Bullish EIA Miss

Highlights

• Natural gas futures see significant uptick
• Storage increase less than expected
• Cold weather forecasts fuel bullish sentiment
• High volume of $3 November puts influences bullish front-month close.

U.S. Natural Gas Futures Climb Amid Cold Forecasts and Supply Data

U.S. natural gas futures experienced a significant uptick, marking their highest level since October 12. On its final day as the front-month, November gas futures on the New York Mercantile Exchange (NYMEX) soared by 13.4 cents or 4.17% as of 10:58 GMT on Friday. The December future, soon to be the new front-month, also saw an 11-cent rise to about $3.587 per mmBtu.

Factors Driving the Uptrend

This robust performance puts the front-month up for the fourth consecutive day, maintaining it above the critical $3 per mmBtu threshold. This level is significant as many put and call options remain open with the November options and front-month expirations approaching. With nearly double the number of $3 November puts (34,010 contracts) compared to $3 November calls (19,735 contracts), firms are more incentivized for the front-month to close above $3 per mmBtu.

Storage and Weather Forecasts

The U.S. Energy Information Administration (EIA) reported a less-than-expected increase of 74 billion cubic feet (bcf) in gas storage for the week ending October 20, fueling the bullish sentiment. Meanwhile, analysts predict colder weather and higher heating demand over the next two weeks, further supporting higher prices. Energy advisory Ritterbusch and Associates attribute the price spike to cold temperature forecasts and the smaller storage injection.

Supply and Demand Dynamics

LSEG reports indicate that the average gas output in the Lower 48 U.S. states increased to 103.9 billion cubic feet per day (bcfd) in October, up from September’s 102.6 bcfd. Despite varying weather conditions across the country, overall gas demand, including exports, is expected to rise from 97.8 bcfd to 107.3 bcfd next week. Pipeline exports to Mexico and gas flows to major U.S. LNG export plants have also shown fluctuations but remain robust.

Short-Term Forecast: Bullish

Given the current dynamics of supply constraints, upcoming winter weather forecasts, and strong demand, the short-term outlook for U.S. natural gas futures appears bullish. Investors and traders should closely monitor weather patterns and storage data for any sudden changes that could impact this positive trajectory.

Technical Analysis

The current daily price of natural gas at $3.575 is above both the 200-day moving average of $2.594 and the 50-day moving average of $2.858, indicating a bullish trend.

With the asset trading above the minor support level of $3.434 and main support at $3.184, the uptrend appears to be strongly supported. However, it’s worth noting that the asset is approaching minor resistance at $3.793, followed by a more substantial barrier at $4.057.

Overall, the market sentiment for natural gas seems bullish in the short term, with key support levels holding firm and the asset trading above both critical moving averages.