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Natural Gas Forecast: Facing Downward Pressure Amidst Cooler Weather Outlook

By:
James Hyerczyk
Updated: Jun 6, 2023, 11:32 GMT+00:00

Cooler weather outlook, surplus levels, and easing gas demand contribute to cautious market sentiment and downward pressure on natural gas prices.

Natural Gas

In this article:

Highlights

  • Cooling weather outlook and surplus levels impact natural gas prices.
  • Cautious market sentiment due to easing gas demand and surplus levels.
  • Monitoring weather patterns and supply dynamics crucial for natural gas prices.

Overview

Natural gas prices faced downward pressure on Tuesday as overnight weather data indicated a reversal in cooling degree days (CDDs). The ECMWF weather model showed a cooler trend for the 8-15-day period, although strong demand is expected from June 15 to 20. Surpluses, projected to reach +380 Bcf, pose a risk for disappointment if the weather deviates from hotter trends.

Weather Patterns Suggest Light Demand

An active weather system is currently crossing the United States, bringing showers, thunderstorms, and comfortable temperatures ranging from the 60s to 80s. The northeastern region will experience the coolest temperatures, with lows dipping into the 40s. This weather pattern results in light demand, except for localized hotter conditions in the southern US.

Meteorologists predict that weather conditions in the Lower 48 states will remain near normal until June 13, followed by a period of above-average temperatures from June 14 to 20. Refinitiv expects US gas demand, including exports, to ease slightly from 95.9 bcfd this week to 95.3 bcfd next week, primarily due to low wind power.

Underpinned by Low Wind Power

Natural gas futures rallied by 3% on Monday due to forecasts of low wind power, warmer weather, increased air conditioning demand, rising exports to Mexico, and higher global gas prices. However, the proportion of power generated by wind dropped to 6%, down from a recent high of 12%. Conversely, the share of gas-generated power rose to 44%, leading to less fuel available for winter storage and contributing to price increases.

Specs Reduce Net Long Futures Positions

Despite near record levels of output and a decline in gas flow to LNG export plants due to maintenance, US gas prices rose by 3% last week. Speculators reduced their net long futures and options positions for the first time in three weeks, according to the US Commodity Futures Trading Commission’s report.

Decline in Gas Flows to US LNG Exports Plants Offset Increased Gas Flows to Mexico

Gas flows to Mexico have increased to 7.4 bcfd in June, setting a new monthly record since June 2021. However, gas flows to the seven major US LNG export plants have declined to 12.1 bcfd so far in June, primarily due to maintenance activities at various facilities. April saw record high flows that surpassed the plants’ LNG production capacity of 13.8 bcfd, as some of the gas is used to power equipment for LNG production.

Short-Term Forecast:  Bearish

Considering the fundamental factors, the short-term forecast for natural gas prices leans towards bearish. The cooler weather trends, surplus levels, cautious market sentiment, and easing gas demand all contribute to a more cautious outlook. However, it’s important to monitor any shifts in weather patterns, supply dynamics, and market conditions that could influence the future trajectory of natural gas prices.

Technical Analysis

Daily Natural Gas

Natural gas is lower early Tuesday. The price action suggests traders are showing respect to the PIVOT at $2.190, putting it in a weak position. Besides being resistance, this level is also the trigger point for an acceleration to the upside.

Overtaking $2.190 will signal the return of buyers. If this move is able to generate enough upside momentum then look for a near-term rally into $2.465 (R1). The move will likely be fueled by short-covering since the market is still decisively bearish.

A sustained move under $2.190 means the market is still in the strong hands of sellers. If this continues to generate enough downside pressure, we could see a retest of the recent bottom at $2.136 and eventually $1.761 (S1).

S1 – $1.761 PIVOT – $2.190
S2 – $1.486 R1 – $2.465
S3 – $1.057 R2 – $2.894

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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