Natural Gas Forecast: Traders Clash on Demand Outlook as Heat Wave Continues

Highlights

• Traders divided on predicted demand shifts.
• Friday saw 2% upswing, driven by demand expectations, but rally fizzled on Monday. 
• Texas grid operator forecasts record demand amid heat wave. 

Overview

U.S. natural gas futures faced a turbulent start to the week as traders grappled with the complexities of current weather forecasts. The market displayed a mix of opinions, with some remaining skeptical about predicted shifts in demand, while others confidently asserted their belief in increased demand’s potential to keep prices in check.

On Friday, the market witnessed a 2% upswing, driven by expectations of heightened demand over the next two weeks. Meteorologists projected an extended period of above-average temperatures, lasting at least until mid-August. Notably, Friday was anticipated to be the hottest day of the summer across the U.S. Lower 48 states, with temperatures almost matching the record set back in July 2022.

However, despite such forecasts, the market reaction seemed restrained, lacking significant bullish movement. Traders appeared unperturbed by the record-breaking heat that heavily stressed electric grids, pushing spot power prices to their highest levels in months. As sweltering temperatures gripped the nation, households and businesses turned to air conditioners to escape the oppressive heat wave.

Grid operators vigilantly issued hot weather alerts throughout the country, prompting energy companies to postpone unnecessary maintenance to ensure all available generating plants and power lines were ready for immediate service. Despite these challenges, no grid operator predicted that power usage would reach all-time highs during the week. Notably, Texas faced a different scenario, with the Electric Reliability Council of Texas (ERCOT), the state’s grid operator, forecasting new demand records for several days of the week due to the persistent heat wave.

Short-Term Outlook:  Divergent Viewpoints Fueling Choppy Trade

The natural gas futures market continues to be influenced by divergent viewpoints, with some traders holding reservations while others remain convinced about the impact of demand fluctuations. As the weather remains a key driver of market sentiment, investors are closely monitoring meteorological updates for potential shifts in demand patterns, which could significantly affect natural gas prices in the short term.

Technical Analysis

The Natural Gas market is currently exhibiting slightly bearish sentiment based on the 4-hour chart analysis. The current price of 2.621 is below both the 200-4H and 50-4H moving averages, indicating a bearish trend in the medium and short term. The 14-4H RSI reading of 44.51 reflects neutral to slightly bearish momentum.

Main support lies between 2.487 and 2.542, while main resistance is at 2.782 to 2.836. With the price trading below key resistance levels and moving averages, the market shows signs of weakness, warranting close monitoring of price movements for potential shifts.