Natural Gas Prices Forecast: Traders Torn Between Record Output and Cold Snap

Highlights

• Oscillating prices indicate market indecision
• Seasonal weather changes affect national demand
• Record output clashes with short-covering

Market Uncertainty Looms Over Natural Gas Futures

US Natural Gas futures are caught in a web of uncertainty, oscillating within a narrow range. Market participants are divided over multiple factors, including seasonal weather changes and solid support levels at $2.820 and $2.796. Whether this is the onset of a consolidation phase or a transition period remains the burning question.

Seasonal Weather Changes Affect Demand

NatGasWeather forecasts the first widespread subfreezing cold snap of the season to grip the northern and central US in the coming week. This would undoubtedly increase heating demand. However, in the interim, the weather remains milder, with high pressure zones extending from the Great Lakes to the Northeast and Southern US, thus keeping national demand low to very light.

Record Output Versus Short Covering

Breaking an eight-day losing streak, the futures gained about 1% on Monday. While this surge may seem positive, it stands against a backdrop of record output and adequate storage. Despite these bearish indicators, short sellers started booking profits, indicating possible changes in market dynamics.

Financial Benchmarks and Arbitrage

The Henry Hub spot market in Louisiana, which has been a bearish weight for most of the year, recorded next-day prices around $2.60 per mmBtu on Monday. Financial firm LSEG noted that as long as the spot prices remain significantly lower than the front-month futures, traders can lock in arbitrage profits, which adds another layer to market complexity.

Outlook: A Complex Picture

The supply-demand balance paints a mixed picture. Average gas output in the Lower 48 U.S. states has hit record highs, while pipeline exports to Mexico have diminished. Yet, the LNG export plants are seeing increased flows. As winter approaches, demand is set to spike. However, forecasts for next week are less optimistic than previously anticipated. All these factors point to a market sentiment that’s too close to call but leans towards bearish.

Technical Analysis

The current daily price of natural gas at 2.924 sits above both the 200-day moving average of 2.601 and the 50-day moving average of 2.819, signaling a bullish trend in both short-term and long-term perspectives.

It’s also above the main support level at 2.838 but below the minor resistance at 3.002, suggesting a consolidation phase may be underway.

Market sentiment leans bullish, primarily supported by the asset’s position relative to its moving averages and main support level. Traders should closely watch for a break above 3.002 to confirm the bullish sentiment. And a failure at 2.813 to trigger a potentail acceleration to the downside.