Natural Gas Forecast: Slightly Lower Following Intense Heat-Driven Surge

Highlights

• Natural gas futures decline despite intense heat-driven demand surge. 
• Market characterized by low volatility, stable prices.
• United States expected to become top LNG supplier by 2023.

Overview

Natural gas futures experienced a slight decline on Wednesday following a strong surge driven by intense heat the previous day. Despite the setback, prices have remained relatively stable, hovering around the mid-point of their 45-day range. The market has been characterized by low volatility, with historic 30-day close-to-close futures volatility at its lowest level since April 2022, marking a six-day streak. Throughout this year, historic volatility has averaged 84.5%, reaching a record high of 92.8% in 2022, with a five-year average of 57.9% (2018-2022).

Hot Weather Forecasts Drive Price Surge

U.S. natural gas futures rose 4% on Tuesday, propelled by forecasts predicting hotter-than-normal conditions persisting until early August, particularly in Texas. This price increase occurred despite rising output, revised lower demand projections for the following week, and below-average gas flows to U.S. liquefied natural gas (LNG) export plants due to ongoing maintenance outages.

Steady Gas Output, Hot Weather Ahead

Gas output in the U.S. Lower 48 states averaged 101.6 billion cubic feet per day (bcfd) in July, slightly higher than June’s 101.0 bcfd. Meteorologists anticipate that hotter-than-normal weather will persist until at least August 2 in the Lower 48 states. Refinitiv projects U.S. gas demand, including exports, to remain around 108.6 bcfd for the current and following week, with a downward revision from the previous outlook for next week.

U.S. LNG Export Growth Hindered

While gas flows to major U.S. LNG export plants increased in July compared to June, ongoing maintenance at facilities such as Cheniere Energy Inc’s Sabine Pass and Corpus Christi has limited the flows. Nevertheless, the United States is expected to become the world’s leading LNG supplier in 2023, surpassing Australia and Qatar, driven by higher global prices resulting from supply disruptions and sanctions related to Russia’s conflict in Ukraine.

Short-Term Outlook:  Short-Sellers Capping Gains

In summary, natural gas futures faced a slight decline in a market with low volatility. Despite rising output and lower demand projections, the market responded positively to prolonged hot weather forecasts. Ongoing maintenance impacted gas flows to LNG export plants, but the United States is expected to become the leading LNG supplier in 2023. Global gas prices have rebounded after a decline earlier this year, and analysts anticipate increased shipments to Asia as prices in the region rise, while Europe continues to be a significant market for U.S. LNG exports.

Technical Analysis

The current market sentiment for Natural Gas appears slightly bearish in the short term, with the price trading slightly lower than the previous close. However, there are indications of potential bullish momentum. The price is  above the 200-4H, while straddling the 50-4H moving average, suggesting potentially bullish sentiment. The RSI, close to the neutral value, leans slightly towards bullish momentum.

The market is currently in a consolidation phase, with the price trading within the main support and resistance areas. Overall, while there are bearish indications, the market shows signs of potential bullish reversal and balanced sentiment. A sustained move over the 50-4H will solidify a bullish outlook.