Natural Gas Forecast: Prices Predicted to Surge Above $3 in Q3 on Increased Demand, Flat Production for 2023

Highlights

• EIA projects natural gas prices to climb above $3 by 3Q2023
• Increased demand and flat production to push natural gas prices higher
• May natural gas futures surge on EIA’s bullish price forecast

Overview

Natural gas futures closed higher on Tuesday, following a late session price surge, fueled by bullish remarks from the U.S. Energy Information Administration (EIA) in its updated projections report.

Earlier in the session, the market retreated from a one-week high in a volatile trade, fueled by higher supply expectations and a milder weather outlook. Meanwhile, volatility could be the norm over the near-term as traders seek out fresh catalysts.

On Tuesday, May natural gas futures settled at $2.222, up $0.050 or +2.30%. The United States Natural Gas Fund ETF (UNG) finished at $7.06, up $0.21 or +3.07%.

EIA Predicts High Natural Gas Prices

The Energy Information Administration (EIA) has released its latest Short-Term Energy Outlook (STEO), which predicts that natural gas spot prices at Henry Hub will average $2.65/MMBtu in the second quarter of 2023.

The agency noted that the same price was also averaged in the first quarter, as the early 2023 temperatures reduced demand. However, the STEO suggests that prices will increase later in the year, climbing above $3 in the third quarter, due to a rise in demand and flat domestic production.

The report forecasts average domestic production of 100.9 Bcf/d for full-year 2023, a 3% increase over 2022 output.

Natural gas exited the injection season with inventories at an estimated 1,856 Bcf, a 19% surplus to the five-year average, and the STEO models a total inventory increase of 1,985 Bcf for April through October.

The report suggests that the trajectory of natural gas prices will also depend on temperatures throughout the summer.

Natural Gas Technical Analysis

Technically speaking, the main trend is up according to the daily swing chart. Taking out the minor top at $2.241 has put the market in strong position. If the move creates enough upside momentum then look for a surge into the short-term retracement zone at $2.391.

A failure to follow-through to the upside after the strong close will be a sign of weakness. This could trigger a break back to a minor pivot at $2.120. If this fails then look for a retest of $1.992.