Natural Gas Prices Forecast: Heightened Volatility Driven by Mixed Weather Outlook

Highlights

• Slight decline in US Natural Gas futures.
• Weather forecasts impact heating demand.
• EIA reports higher-than-expected gas withdrawal.

Performance Overview

US Natural Gas futures are exhibiting a slight decline following a robust performance in the previous session. This fluctuation is attributed to the contrasting weather forecasts from GFS and EC for the upcoming 15 days, leading to potential volatility as traders position for the New Year’s break.

Weather Impact on Demand

Forecasts for colder weather systems entering the US between January 5-7 and January 10-13 are pivotal. The NatGasWeather forecast indicates a mix of mild and colder spells in various regions, impacting heating demand. This weather-driven demand is a critical factor for natural gas prices.

EIA Storage Data

The U.S. Energy Information Administration reported a withdrawal of 87 billion cubic feet (bcf) from gas storage for the week ended Dec. 22, exceeding expectations. This withdrawal compares to a significant 195 bcf drawdown in the same period last year and a five-year average decrease of 123 bcf.

Supply and Demand Dynamics

Current demand is projected to be moderate, influenced by mild weather conditions and holiday season closures. However, an uptick in demand is anticipated with the onset of colder weather in January. On the supply side, gas production in the Lower 48 U.S. states has increased, along with a rise in gas flows to major LNG export plants.

Short-Term Forecast: Cautiously Bullish

onsidering the expected increase in heating demand due to incoming colder weather, alongside current supply levels, the short-term market sentiment leans towards a cautiously bullish outlook. However, traders should remain vigilant of evolving weather patterns and their impact on demand fluctuations.

Technical Analysis

The US natural gas futures market is exhibiting a bearish sentiment. The current daily price of 2.538 is below both the 200-day moving average of 3.093 and the 50-day moving average of 2.856, indicating a downward trend.

This price is also below the main support level of 2.590, further reinforcing the bearish outlook. There is no defined minor support level, and the price is approaching the minor resistance level of 2.590. This particular set-up means this price is the pivot which will determine the tone of the day.

The lack of trend line support and resistance data means the focus is on these moving averages and support/resistance levels, which currently suggest a cautious or bearish market outlook. The market’s position below these key indicators points towards potential further downside unless it can reclaim and stabilize above these critical levels.