Natural Gas Prices Forecast: Mixed Signals Amid Fluctuating Supply/Demand Factors

Highlights

1. A week of contrasts: U.S. natgas prices both soared and sank, with weather reports clouding the outlook.
2. An 11% weekly uptick in front-month gas futures couldn’t stave off a 1% Friday decline.
3. U.S. gas output subtly ebbs, recording 102.1 bcfd in September, hinting at shifting supply dynamics.
4. LSEG forecasts U.S. gas demand to slide to 94.8 bcfd, influenced by milder weather on the horizon.

U.S. Natural Gas Market: A Week of Mixed Signals

The U.S. natural gas market experienced a week of contrasts, with prices showing both upward and downward momentum. Despite an 11% weekly rise in front-month gas futures, Friday’s close saw a decline of about 1% on weather forecasts indicating milder conditions. Factors such as record exports to Mexico, fluctuating supply and demand, and broader geopolitical influences have resulted in a complicated landscape for traders.

Supply and Demand Dynamics

The average gas output in the lower 48 states dipped slightly, registering 102.1 billion cubic feet per day (bcfd) in September, down from the 102.3 bcfd high in August. Financial firm LSEG anticipates a decrease in U.S. gas demand to 94.8 bcfd next week, influenced by warmer-than-average weather until mid-October. On the flip side, gas flows to major U.S. LNG export plants saw an uptick, reaching an average of 12.6 bcfd this month, even amidst ongoing maintenance activities at some plants.

Pipeline exports to Mexico maintained an upward trend, hitting an average of 7.2 bcfd last month. LSEG projects that this demand will continue, especially once New Fortress Energy’s Altamira LNG export plant starts operations.

Price Volatility and Technical Levels

Despite short-term declines, last week’s market action indicated some bullish patterns. Gas futures for November jumped, reaching a seven-week high of $2.997 per mmBtu. In a significant technical move, the contract broke above the 200-day moving average, a resistance level not surpassed since November 2022. The market volatility index is at its lowest level since April 2022, signaling a somewhat stabilized trading environment.

Geopolitical Factors and Global Prices

The global context also brings both opportunities and challenges for the U.S. natural gas market. The country is expected to lead LNG exports by 2023, with current prices being buoyed by supply disruptions and sanctions mostly tied to Russia’s war in Ukraine. Gas prices in Europe and Asia are at staggering levels, trading around $12 and $15 per mmBtu, respectively.

Short-Term Forecast

In the short-term, the market sentiment appears to be cautiously optimistic. Although supply is robust, the potential for increased demand, both domestically and internationally, lends a bullish undertone for the coming week. However, traders should keep an eye on weather forecasts and international developments, as these factors could quickly shift the market in either direction.