Natural Gas Prices Forecast: Traders Balancing Weather, Production Shifts

Highlights

• Natural gas futures recover after recent drop
• Weather patterns to impact US gas demand
• Another week of high output ahead of EIA storage report
• Henry Hub spot prices offer arbitrage potential

US natural gas futures are experiencing a slight increase, recovering from a significant drop in the previous session. This uptick is largely attributed to traders forming a support base, spurred by expectations of cooler temperatures arriving next week. However, these gains are being tempered by concerns over potential declines in demand and increases in production.

Weather Patterns and Demand Outlook

Current forecasts by NatGasWeather indicate that most parts of the US will experience warmer-than-normal conditions through Friday. Cooler temperatures are expected to hit the Midwest and Northeast from Saturday to Monday, potentially increasing heating demand. Despite this, overall demand is expected to remain light to very light until the weekend.

Tuesday’s Price Decline and Storage Trends

Tuesday saw a 3% decline in US natural gas futures, driven by anticipations of continued high output allowing utilities to inject gas into storage until late November. This trend is notable as utilities typically start withdrawing gas from storage for heating purposes by mid-November. Analysts predict the first withdrawal of the 2023-2024 winter season occurred during the week ended Nov. 3.

Henry Hub Spot Prices and Arbitrage Opportunities

The futures market has been impacted by lower spot prices at the Henry Hub benchmark, with next-day prices frequently trading below front-month futures this year. This situation presents opportunities for traders to lock in arbitrage profits by buying spot gas and selling futures contracts.

Supply and Demand Forecasts

In November, gas production in the Lower 48 US states has risen, and with expectations of colder weather towards the month’s end, demand, including exports, is likely to increase. Gas supplies to key US LNG export plants have also seen a boost, reflecting strong export demand. The market is currently contending with a slew of weather-related demand, production rates, and storage considerations. Despite a generally downward trend, the current market conditions suggest a more fluctuating and unpredictable scenario.

Technical Analysis

The current market situation for natural gas shows a notable trend with the daily price crossing the minor resistance level of 3.184. This price is significantly above both the 200-day and 50-day moving averages, at 2.599 and 3.027 respectively, indicating a strong bullish momentum.

The position above the 50-day moving average, in particular, suggests a positive short-term trend.

The overall market sentiment for natural gas, given these technical indicators, leans towards bullish in the short term.