Natural Gas Prices Forecast: Weather Forecasts, Supply Glut Unsettle Markets

Highlights

• Natural gas prices drop overnight on warmer forecasts.
• LSEG reports bearish supply-demand metrics.
• Market highly sensitive to weather updates.

Shift in Weather Forecasts Puts a Chill on U.S. Natural Gas Futures

Just a day after soaring 22 cents on colder forecasts, U.S. natural gas futures experienced a sharp pullback due to revised weather predictions. The contract for December delivery on the New York Mercantile Exchange took a hit, sliding from a nine-month high and retreating from technically overbought territory, as gauged by its relative strength index (RSI) surpassing 70 for two consecutive days.

Market Reacts to Volatile Weather Predictions

The market’s rapid reaction followed an overnight shift in forecasts from both the Global Forecast System (GFS) and the European Centre for Medium-Range Weather Forecasts (EC). Initially predicting colder temperatures, the forecasts abruptly trended warmer for November 5-15, shedding 8 Heating Degree Days (HDDs) overnight. This fluctuation underscores the increasing role weather plays in the volatile natural gas market, especially as we approach the winter heating season.

Supply and Demand Dynamics

On the supply side, financial analytics firm LSEG reported an increase in average gas output to 104.1 billion cubic feet per day (bcfd) in October from 102.6 bcfd in September in the Lower 48 states. While the demand was initially slated to drop from 110.2 bcfd this week to 105.5 bcfd next week due to warmer forecasts for early November, these figures are still higher than LSEG’s earlier outlook, pointing to a somewhat bullish sentiment on the supply-demand front.

Export Prospects

Pipeline exports to Mexico dropped to 6.8 bcfd in October, down from September’s record of 7.2 bcfd. However, the landscape looks set to improve with the commissioning of New Fortress Energy’s Altamira plant in November, aimed at boosting LNG exports. Gas flows to key U.S. LNG export plants rose in October, positioning the U.S. to become the world’s largest LNG supplier by 2023.

Short-Term Outlook: Bearish with Heightened Volatility

Despite the recent uptick and generally bullish supply metrics, the immediate future for natural gas prices appears bearish. The market has shown extreme sensitivity to weather forecasts, which currently predict a warmer trend that is likely to soften demand in the short term. Therefore, traders should exercise caution and keep a close eye on weather updates, as they continue to wield considerable influence on price movements.

Technical Analysis

The current daily price of natural gas at 3.496 sits above both the 50-day moving average of 2.910 and the 200-day moving average of 2.592. This generally indicates a bullish trend in the market.

However, the asset is trading below its previous daily close of 3.575, which could be a short-term bearish signal.

The commodity is trading closer to the minor support level at 3.434 than to the minor resistance at 3.793, suggesting that it may test this support in the near term.

Given these conflicting signals, the market sentiment appears to be cautiously bullish, but vulnerable to a steep break if support fails.