Natural Gas Prices Forecast: Weak as Traders Navigate Bearish Weather Trends

Highlights

• Gas futures testing August 7 low despite persistent heatwave.
• Stable demand expected; slight drop in exports.
• Bearish short-term forecast for gas futures.

Overview

US natural gas futures are lower on Friday, reaching their lowest point since early August. Despite the persistent summer heatwaves, especially in areas like Texas, the gas industry has shown resilience, indicating its preparedness for heat but greater susceptibility to winter’s demands.

Modest Storage Build

Gas futures witnessed reduced gains following the recent government report. This report revealed an expected, modest storage build from the previous week, largely driven by increased cooling demand due to hot weather conditions. The U.S. Energy Information Administration (EIA) reported an addition of 35 billion cubic feet (bcf) to gas storage in the week ending on August 11. This figure aligns closely with the anticipated 34-bcf build, although it was higher than the 21 bcf increase observed in the same week the previous year.

Demand, Production, and Export Dynamics

Data from Refinitiv showed that the demand for US gas, when combined with exports, is projected to remain fairly stable, transitioning from 103.7 billion cubic feet per day (bcfd) this week to 103.8 bcfd in the coming week. This projection marked a drop from their prior forecast. Furthermore, August’s average gas output in the Lower 48 states almost mirrored July’s numbers, and they weren’t far off from the monthly record set in May. It’s worth noting, however, that the flow to major US LNG export plants has decreased slightly this August, mainly due to reductions at a key Louisiana facility.

Weather’s Influence on Gas Demand

NatGasWeather’s recent report indicates that the southern and western parts of the US will continue to experience high temperatures, ranging from the 90s to 100s. Meanwhile, the Midwest and Northeast are expected to have slightly cooler temperatures through Saturday, only for much of the country to heat up again early next week. This trend suggests that the country’s demand for natural gas will remain high throughout the week.

Short-Term Forecast

Considering the consistent summer heat, the gas industry’s competent response, and the ongoing demand patterns, the outlook for US natural gas futures seems bearish in the short term. The primary reason being the market’s anticipation of the summer rally’s end and the expectation that the current heatwaves will persist into September. However, the true test for the gas industry will be the forthcoming winter season, as it historically drives significant demand.

Technical Analysis

Natural Gas’s current 4-hour price of 2.545 is below its previous 4-hour close of 2.574, indicating recent bearish momentum. The price is significantly below the 50-4H moving average of 2.745, further reinforcing this bearish sentiment. It’s also slightly beneath the 200-4H moving average of 2.665, suggesting a potential longer-term downtrend.

The 14-4H RSI stands at 31.29, just above the oversold threshold, pointing to weakened momentum but also a potential bounce-back in the near future.

Given that the current price is hovering just above the main support area between 2.542 and 2.487 and is far from the main resistance area ranging from 3.027 to 3.091, the market sentiment for Natural Gas, based on these technical indicators, appears to be bearish.