Natural Gas Prices Forecast: Short-Sellers Dominate Amid Record Output, Mild Weather

Highlights

• Natural gas prices fall with weather, high output.
• Varied temperatures affect U.S. natural gas demand.
• Record gas output, lower exports to Mexico noted.

Prices Fall Amid Mild Weather Forecasts

U.S. natural gas prices continue to drop, marking a downward trend for the week. This decline is attributed to a combination of record output and forecasts for mild weather, which are expected to reduce heating demand and allow for continued gas storage injections.

Weather Outlook and Demand

According to NatGasWeather, the U.S. will experience varied temperatures, with the southern and eastern regions seeing warmer conditions. A cool shot is expected across the northern and central U.S., leading to near-seasonal national demand before temperatures rise again next week. This fluctuation in weather conditions is influencing natural gas demand, transitioning from low to moderate and then back to low.

Storage and Market Dynamics

The U.S. Energy Information Administration (EIA) postponed its weekly gas storage report due to a systems upgrade, with analysts predicting a withdrawal of about 7 billion cubic feet for the week ended Nov. 3. A noteworthy trend has been the lower spot prices at the Henry Hub, with next-day prices recently rising by about 9% to $2.18 per mmBtu. This price dynamic is creating opportunities for arbitrage profits in the futures market.

Supply and Export Trends

Record gas output in the Lower 48 states has been observed, with an increase to 107.0 billion cubic feet per day in November. However, pipeline exports to Mexico have decreased, hitting an eight-month low. Analysts anticipate a rise in U.S. exports to Mexico by year-end, fueled by the new liquefaction train at New Fortress Energy’s plant in Mexico.

Short-Term Outlook

The short-term outlook for U.S. natural gas remains bearish, considering the mild weather forecasts and robust supply. This situation is likely to sustain the downward pressure on prices in the immediate future, with market players closely monitoring temperature trends and export activities.

Technical Analysis

The current daily price of natural gas stands at 3.010, which is above both the 200-day moving average of 2.592 and the 50-day moving average of 2.994. This positioning above key moving averages suggests a bullish trend in both the medium and longer-term perspective.

The price is marginally above the minor support level of 3.002, indicating that this level could act as a pivot point in the short term. If it holds, it may reinforce the bullish trend; a breach below could indicate a shift towards bearish sentiment.

Furthermore, the price is currently positioned below the minor resistance level of 3.184, suggesting that overcoming this barrier could lead to further upward movement.

The main resistance at 3.434 remains a significant threshold to watch for a continuation of the bullish trend.

Overall, the market sentiment for natural gas appears bullish based on its current position relative to the moving averages and proximity to key support and resistance levels.

However, more detailed analysis suggests the tone of the market on Friday will be determined by trader reaction to the support cluster at 3.002 to 2.994. Look for a bullish tone on a sustained move over 3.002, and for a bearish tone to develop on a sustained move under 2.994.