Natural Gas Forecast: Futures Steady-to-Better Ahead of EIA Storage Report

Highlights

• Natural gas futures edge higher before EIA storage report.
• Record gas output and reduced demand forecasts impact prices.
• Weather patterns and energy generation affect short-term outlook.

Overview

On Friday, natural gas futures are slightly higher as investors awaited the release of the weekly storage report from the U.S. Energy Information Administration (EIA) later in the day at 14:30 GMT.

The upcoming EIA storage report was seen as a potential catalyst for prices. National survey averages suggested a build of around +63-64 billion cubic feet (Bcf), which aligns with the 5-year average of +64 Bcf. The weather conditions varied across different regions, with Texas and nearby states experiencing intense heat, while California, the Rockies, and the Ohio Valley had cooler temperatures. My short-term outlook hinted at a build of +58 Bcf, with the possibility of a lower figure due to increased wind and solar energy generation.

Recap of Thursday’s Action

On Thursday, U.S. natural gas futures declined by approximately 2%, reaching a one-week low. This drop was attributed to near record gas output and reduced demand forecasts for the next two weeks. However, the flow of gas to the country’s liquefied natural gas (LNG) export plants was increasing, and the hot weather expected in the U.S. Lower 48 states, particularly in Texas, was anticipated to continue through late July. The Electric Reliability Council of Texas (ERCOT) projected a heat wave in the upcoming week, leading to record-high electricity usage. Gas-fired power plants play a significant role in meeting the demand for air conditioning, especially in Texas.

Supply and Demand

Data from Refinitiv indicated that gas production in the Lower 48 states had risen to 101.9 billion cubic feet per day (bcfd) in July, up from 100.9 bcfd in June, potentially matching the monthly record set in May. Meteorologists predicted near-normal weather until July 10, followed by a period of hotter-than-normal temperatures until at least July 21. Refinitiv’s forecast for U.S. gas demand, including exports, suggested a rise from 103.0 bcfd during the current week to 103.3 bcfd in the next week. However, these forecasts were slightly lower than the previous day’s outlook.

Short-Term Outlook

Looking ahead, NatGasWeather anticipated that hot high-pressure systems would dominate the southern, western, and eastern regions of the U.S. from July 7 to July 13. This would result in strong demand, with temperatures ranging from the 90s to 100s. Conversely, the Midwest and Plains were expected to experience comfortable weather with temperatures in the 70s to 80s, accompanied by showers. These conditions would lead to light demand in those areas. Additionally, more weather systems were predicted to move across the Midwest and interior Northeast in the following week.

Technical Analysis

Natural Gas sentiment is currently neutral with a slight bearish bias. The 4-hour price of Natural Gas is slightly lower than the previous close, indicating a minor downward movement. The price is positioned between the 200-4H and 50-4H moving averages, suggesting a neutral stance. The 14-4H RSI sits at 41.45, indicating moderate momentum and no extreme buying or selling pressure.

The market faces an immediate challenge at the main resistance area at 2.681 to 2.717, limiting potential upside movement. Overall, the market shows a lack of clear direction, and close monitoring is advised for any potential shifts in sentiment. However, the inability to overcome resistance could trigger an acceleration into support at 2.495.