Natural Gas Forecast: Can a Biden LNG Policy Shift Reverse the Bearish Trend?

Key Points

• Surging Production, Diminished Winter Demand Drive Price Fall
• Biden’s LNG Policy Pause Stirs Market Uncertainty
• Supply Outstrips Demand, Fueling Bearish Market Sentiment

Weekly Recap: Extreme Selling Pressure

Last week, the natural gas market experienced several key developments that led to a significant drop in prices, reaching a three-year low. This movement in the market was influenced by a mix of factors ranging from increased production to policy changes.

During the week-ending February 11, 2024, Natural Gas Futures settled at $1.847, down $0.232 or -11.16%.

Production and Consumption Trends

The most notable factor was the sharp increase in natural gas production, which coincided with a decrease in demand due to unusually mild winter conditions. These milder temperatures significantly reduced the need for heating, thus lowering domestic consumption of natural gas. Further contributing to the surplus was the reduced activity in LNG export plants, leading to an accumulation of supply.

Policy Impact

The market also reacted to the Biden administration’s recent pause on new natural gas projects. This decision has introduced a new layer of uncertainty, particularly regarding the future of LNG expansion and production growth. The ongoing political discussion about this moratorium, especially considering the potential for policy shifts under different leadership scenarios, has added to the market’s unpredictability.

LNG Export and International Factors

On the global stage, the U.S. continues to be a major LNG supplier, despite internal challenges. However, domestic LNG export capacity has seen a downturn due to operational setbacks at key plants.

Weather and Storage Effects: The continued trend of warmer weather has been a key factor in shaping natural gas demand. Current weather forecasts suggest this trend will persist, likely leading to sustained low demand for heating gas, further influencing gas prices.

Forecast for the Coming Week

Looking ahead, various elements are expected to shape the natural gas market:

Weather Influence: The ongoing warmer weather trend is set to continue, potentially maintaining the reduced demand for heating gas. The extremely bearish price action suggests that the last of the longs have thrown in the towell for this winter season.

Production Responses: While discussions about scaling back gas drilling are ongoing, overall production is expected to remain substantial. This is largely due to high crude oil prices, which incentivize increased oil and associated gas extraction, particularly in shale regions like the Permian Basin.

Policy and Market Responses: Market participants will be closely watching for any updates or changes in the Biden administration’s approach to LNG projects. Changes or clarifications in policy could have a notable effect on market sentiment and pricing.

Balance of Supply and Demand: The market is currently adjusting to the existing supply-demand equilibrium. High storage levels and the prospect of continued low demand could keep prices subdued.

Global Market Interactions: International developments, including changes in global politics or shifts in worldwide energy demand, could indirectly impact U.S. LNG exports, influencing domestic gas prices.

In conclusion, while the short-term outlook remains bearish due to ongoing factors such as weather patterns and policy uncertainties, the natural gas market remains sensitive to any sudden shifts in these areas.

Traders and investors are advised to stay alert to the evolving market landscape, as it presents a complex interplay of factors capable of swaying natural gas prices. Of particular interest will be whether technical oversold indicators encourage short-covering and profit-taking or even aggressive counter-trend buying.