Natural Gas Prices Forecast: Record U.S. Gas Output Challenging Market Sentiment

Highlights

• U.S. gas output hits record 103.5 bcfd
• Geopolitical tensions fueling light short-covering
• Australian LNG strike fears abate

Market Overview

U.S. natural gas futures are showing signs of life, inching up by 0.67% to $3.101 despite a five-day losing streak. The market’s positioning within yesterday’s trading range suggests impending volatility and possible sentiment transition from bearish to bullish. Speculation around short-covering driven by escalating tensions in the Middle East has given the market a slight boost. However, it’s worth noting that Israel is not a significant natural gas producer.

Weather and Demand

Cooler weather patterns are set to influence demand but only marginally. Temperatures in the Northeast are expected to drop this weekend, and again between October 29-31, causing a slight uptick in demand. However, forecasts show comfortable weather conditions persisting through much of the U.S., signaling light demand until the end of the month.

Australian Strike Resolved

A breakthrough in wage negotiations between Chevron and Australian LNG unions has doused fears of disrupted supplies. Strikes planned at Chevron’s Gorgon and Wheatstone projects have been called off, eliminating risks that had previously escalated European spot prices. These facilities contribute to 6% of global LNG supplies, primarily servicing Asian markets.

Supply Indicators

On the supply front, the U.S. is hitting record highs with an average gas output of 103.5 billion cubic feet per day (bcfd) this October. Pipeline exports to Mexico have slightly decreased, but LNG exports are set to rise with the reopening of Cove Point export plant. U.S. gas supply dynamics indicate robust output, poised to meet global demands, especially as colder weather looms.

Short-Term Forecast

Given the surging U.S. natural gas output and the resumption of Australian LNG supplies, alongside modest seasonal demand, the short-term outlook for U.S. natural gas leans bearish. While geopolitical events and potential labor strikes could introduce some volatility, strong supply fundamentals currently tip the scales toward a downward price movement in the near term.

Technical Analysis

The current daily price of natural gas at 3.106 sits above both the 200-day moving average of 2.620 and the 50-day moving average of 2.812, indicating bullish momentum. It also surpasses the minor support level at 3.002 and main support at 2.838, adding to the bullish sentiment.

While the minor resistance stands at 3.414, the asset would need to break through this level to confirm further upside potential.

In summary, strong technicals coupled with price levels above both short-term and long-term moving averages, as well as main and minor support levels, suggest a predominantly bullish market sentiment for natural gas. However, traders are still fishing for the level that is strong enough to support  a rally to new short-term highs.