Natural Gas Prices Forecast: Weather, Strike Talk, Volume Dictate Futures Slide

Highlights

• U.S. natural gas futures see a pronounced decline at the week’s start.
• Post-weekend gap lower typically denotes strong bearish sentiment, alerting market watchers.
• Multiple dynamics, from geopolitical events to storage changes, influence this bearish sentiment.

Overview

U.S. natural gas futures exhibited a sharp decline as they began the week, marked by a pronounced gap lower which surpassed lows of the preceding two days.

Gap Lower and Its Meaning

The emergence of a gap lower after a weekend is commonly interpreted as a clear sign of a robust bearish sentiment among traders. These gaps are often the result of:

1. Bearish Sentiment: Various factors, from unexpected storage fluctuations to geopolitical events, can drive this sentiment, influencing traders’ perception of natural gas’s value or demand.
2. News or Events Impact: Gaps can be initiated by substantial news or events that happen during market closures. In the context of natural gas, such movements might stem from unforeseen storage alterations, geopolitical developments, significant regulatory changes, or even dramatic shifts in weather that could influence demand.
3. Technical Indicators: Gaps might also be dictated by technical reasons. If, for instance, prices break a significant support level, it could signal that the support has been breached, hinting at potential further declines.
4. Liquidity and Trading Volume: The trading volume during a gap lower offers further insights. High volumes accentuate the bearish outlook, implying a more substantial consensus among market participants.

Weather Predictions and Strike Negotiations

In the current scenario, the drop may be attributed to inaccurate weather predictions over the weekend, potentially forecasting higher temperatures than what materialized. Also, ongoing negotiations to prevent strikes at Chevron Australia’s LNG facilities add another layer of market apprehension.

Short-Term Forecast

With a mix of factors in play – from thinner trading volumes owing to the U.S. holiday, intensified selling tendencies, bearish meteorological projections, and the looming possibility of higher production if strikes are averted – it appears that the downtrend in natural gas prices is set to continue in the near future.

Technical Analysis

Certainly, based on the provided data:

• The current 4-hour price of natural gas stands at 2.671, which is marginally below its previous 4-hour price of 2.692.
• The current price is slightly above the 200-4H moving average of 2.663, and marginally higher than the 50-4H moving average of 2.640.
• The 14-4H RSI reading of 45.26 suggests a slightly weakened momentum but is not in the oversold territory.
• The commodity is trading just below the main support area of 2.674, and considerably below the main resistance area ranging from 3.027 to 3.091.

In conclusion, the natural gas market exhibits a mild bearish sentiment in the short term, given its proximity to key support levels and a slightly weakened RSI reading. Furthermore, taking out the moving averages make the market vulnerable to a near-term breakdown.