Natural Gas Prices Forecast: Weather Patterns Fail to Revive Slumping Market

Key Points

• Natural gas futures reach three-and-a-half-year lows.
• Mild U.S. weather curtails short-term gas demand.
• Oversupply and limited demand drive market downturn.

U.S. Natural Gas Market Overview

U.S. natural gas futures are drifting lower on Wednesday, currently searching for a reliable support level. The latest sell-off is attributed to traders abandoning hope for this winter’s heating season, coupled with the Biden Administration’s halt on new LNG export ventures, diminishing demand.

Despite this, there’s potential for change with predictions of reduced production growth in March. However, substantial supplies in storage pose a challenge for the approaching shoulder season and subsequent summer cooling period.

At 13:00 GMT, U.S. Natural Gas futures are trading $1.664, down $0.025 or -1.48%.

Recent Performance

Natural gas futures reached three-and-a-half-year lows on Tuesday, with market sentiment skeptical about a cold snap’s impact on the excess storage situation. U.S. production is nearing record highs, contributing to the market’s oversupply. The downward trend in prices threatens the viability of numerous providers, though a temperature drop might offer temporary relief. March Nymex futures continued to fall, impacted by robust supply and limited demand.

U.S. Shale Production Insights

March 2024 forecasts a modest 0.2% increase in U.S. shale production, a significant decline from last year’s monthly average growth of 0.9%. This deceleration stems from shale operators prioritizing financial efficiency and shareholder returns. This may slow the rate of decline in the market, but is by no means expected to be a trend-changing event.

Weather Impact

Mild temperatures across the U.S. are expected, with a cold front moving through the Plains, Midwest, and Northeast. National demand will be light, intensifying over the weekend. Weather models suggest a warmer period post-weekend, potentially affecting March 2024 prices. Not a game-changer either with traders already looking forward to the spring.

Long-Term Bullish News

Shell’s LNG outlook predicts a 50% surge in demand by 2040, driven by the global shift to cleaner fuels. Despite a peak in natural gas demand post-2040, LNG demand will continue to rise, particularly in Asia as countries transition from coal.

This growth, although slightly lower than previous estimates, highlights LNG’s growing significance, especially after Russia’s reduced gas supply to Europe. Shell anticipates global LNG demand reaching between 625mn to 685mn tonnes by 2040, up from 404mn tonnes in 2023. Great news, but should have minimal effect on the bearish short-term picture, or until the Biden Administration lifts the chokehold on U.S. LNG exports.

Market Forecast

The U.S. natural gas market currently faces bearish pressures, primarily due to oversupply and diminished demand.

The potential slowdown in shale production and the long-term bullish outlook for LNG demand present a mixed scenario. In the short term, the market remains bearish, with the possibility of a turnaround hinging on significant policy changes or unexpected shifts in international demand trends.

However, the long-term outlook is more optimistic, considering the anticipated global surge in LNG demand. A key factor that could pivot the market over the short-run is a substantial shift in either production strategies or a notable increase in LNG exports.

Technical Analysis

Natural gas futures are inching lower on Wednesday, although they are trading inside yesterday’s range. At first glance, this doesn’t represent a change in trend is imminent, but it could be early signs of a transition from extremely bearish to mildly bearish. Nonetheless, given the bearish fundamentals and the poor chart structure, any rally is likey to be sold until a solid bottom is formed and the last of the stubborn longs is driven out.

The best sign of a short-term bottom will be a dramatic lower-lower, higher-close on big volume. This is commonly called a closing price reversal bottom.