Natural Gas Prices Forecast: Will Forecasted Warming Trend Halt the Rally?

Key Points

• Freezing weather causes U.S. gas production drop
• Rising demand meets potential supply shortages
• Futures market cautiously bearish, weather-dependent

U.S. Natural Gas Market: Weathering Uncertainty

The U.S. natural gas market is currently navigating a complex climate-driven scenario. Freezing temperatures have led to a significant drop in gas production, especially in Texas. This has resulted in a supply drop of 9.6 bcfd this week, reaching an 11-month low at 98.6 bcfd as of January 14. While this decline is serious, it’s less severe than the impact of Winter Storm Elliott in December 2022.

State-Specific Struggles

Texas, with its power grid operator ERCOT, faces potential power shortages and is urging energy conservation. Meanwhile, North Dakota’s oil and gas production has drastically reduced due to the extreme cold. This situation echoes the 2021 Texas freeze, highlighting the unpredictability of current weather patterns.

Demand Surge Amidst Freezing Conditions

U.S. gas demand is skyrocketing, with expectations to surpass December 2022’s record. Oregon is already experiencing power outages and price surges. However, the latest European weather model forecasts suggest a warming trend post-January 19, which could significantly affect demand.

Forecast: Natural Gas Futures – Cautiously Bearish with a Side of Vigilance

The outlook for natural gas futures leans towards cautiously bearish sentiment. The market’s opening at lower levels reflects this cautiousness, driven by the current supply-demand imbalance. However, the scenario is not set in stone. With weather forecasts suggesting a potential warming trend in the near future, a significant shift in market dynamics is possible. If this warm spell materializes as predicted, we could witness a reduction in demand, further tilting the market towards bearish territory.

This bearish outlook is also underpinned by the substantial natural gas reserves currently in storage. At 3,336 Bcf, these reserves are not only above the previous year’s levels but also surpass the five-year average. Such a robust storage situation offers a buffer against immediate supply concerns.

However, traders should exercise balanced caution. The natural gas market is famously sensitive to weather fluctuations, making it crucial to stay updated with the latest meteorological reports. These updates could be pivotal, potentially overturning current market expectations. In summary, while the short-term trend hints at a bearish stance, the market’s sensitivity to evolving weather patterns calls for continuous vigilance and adaptability.

Technical Analysis

In the natural gas market, the current daily price of 3.117 sits comfortably above the 200-day moving average at 3.079 and the 50-day moving average at 2.776, signaling a bullish trend in the longer term.

The price is currently near a support cluster, which includes the 200-day moving average and minor support at 3.056. Conversely, the minor resistance at 3.315 stopped the rally twice last week.

This positioning suggests that a breach below the support cluster could lead to a retraction towards the 50-day moving average, hinting at short-term bearish potential.