Natural Gas Forecast: Markets Bracing for Volatile Weather Market Trade

Highlights

• Weather-driven market based on last week’s volatile performance.
• Power burns and heatwave affect demand outlook.
• Downside pressures persist, but gradual storage reduction expected.

Overview

The U.S. natural gas futures market is closed today for the Independence Day holiday. However, traders are preparing for a potentially volatile week as natural gas enters a weather-driven market following last week’s mixed performance.

Bearish Supply Offsets High Temperatures

According to NatGasWeather, the background state remains bearish with significant surpluses at +358 Bcf. This week will provide an opportunity to gauge power burns’ strength as widespread heat and lighter wind energy generation are expected, particularly over the western, southern, and eastern parts of the U.S. While several factors seem bullish, oversupplies contribute to the overall bearish sentiment.

Hot Weather Boosts Natural Gas Demand

Looking ahead, the weather outlook for July 3-9 indicates hot high pressure dominating the southern, western, and eastern U.S., with temperatures ranging from the 90s to 105°F, resulting in strong demand. In contrast, the N. Rockies and N. Plains will experience more comfortable conditions with showers and temperatures in the 70s to lower 80s, gradually spreading across the Midwest.

Natural Gas Futures Open Week Lower

U.S. natural gas futures faced a decline of over 3% on Monday due to forecasts suggesting slightly lower temperatures in the upcoming week. However, the increase in daily gas flows to LNG export plants and a positive demand outlook limited the losses. Power usage remained high in Texas, reaching record levels during the heatwave, driving up gas consumption for electricity generation. The Texas power grid was able to meet the demand with sufficient power supply from wind and solar plants.

Gas Market Faces Price Pressures

While the market currently faces downside price pressures due to adjusted temperature forecasts, a gradual reduction in the gas storage surplus is expected in the coming weeks, potentially offering modest price support. However, nearby futures remain vulnerable to further slippage. Gas output in the U.S. Lower 48 states averaged 101.9 billion cubic feet per day (bcfd) in July, slightly lower than the record high of 102.5 bcfd in May. As the weather gets hotter, forecasters anticipate an increase in U.S. gas demand, including exports.

U.S. Natural Gas Exports Stabilize

In June, U.S. exports to Mexico rose to an average of 6.6 bcfd. Flows to major LNG export plants averaged 13.1 bcfd in July, though below the record high levels. Maintenance activities at various facilities have contributed to the slightly lower export volumes.

Technical Analysis

The current market sentiment for Natural Gas appears relatively neutral. With a slight upward movement, the current price is above both the 200-4H and 50-4H moving averages, indicating potential bullish sentiment. The 14-4H RSI reading at 51.09 suggests a balanced market.

The price falls within the main support and resistance areas, reinforcing the neutral outlook without a clear breakout. Traders should closely monitor price movements for further confirmation of a bullish or bearish trend. Overall, the market for Natural Gas currently exhibits a balanced sentiment, with indications of potential bullish momentum but lacking a decisive direction.