Natural Gas Forecast: Traders Reacting to Weather Data, Heat Waves Forecasted

Highlights

• Today’s cooler weather data puts downward pressure on natural gas prices.
• Heat waves in Texas increase demand for natural gas for air conditioning.
• Maintenance-related disruptions limit gains in natural gas prices.

Overview

Natural gas prices faced downward pressure on Wednesday as cooler weather data emerged, signaling a potential decrease in demand. However, heat waves are still expected in Texas and surrounding states, with temperatures reaching the 90s to 100s, which will drive up the demand for natural gas for air conditioning.

At 10:54 GMT, Natural Gas is trading $2.2655, up 0.0195 or +0.87%.

In the previous session, prices rose by about 3% due to reduced daily output and forecasts of hotter weather in late June. Texas is projected to experience record-breaking electricity usage as homes and businesses rely heavily on air conditioners to combat the summer heat.

Factors Limiting Natural Gas Gains

Despite the price increase, there are factors limiting the gains in natural gas prices. Maintenance-related disruptions have led to a drop in gas flowing to U.S. liquefied natural gas (LNG) export plants.  This has resulted in reduced forecasts for overall U.S. gas demand. The average gas flow to the seven major LNG export plants has decreased, primarily due to maintenance at facilities such as Cheniere Energy Inc’s Sabine Pass in Louisiana.

Weather Patterns Active

Looking ahead, the weather patterns in the United States will remain active, with showers, thunderstorms, and comfortable temperatures expected in most areas. However, the Southwest, Texas, the South, and Florida will experience a hot ridge.  This should lead to strong demand for natural gas with temperatures soaring to the 90s to 100s.  Meteorologists anticipate near-normal weather conditions until June 20, after which it will turn hotter than normal from June 21-28.

Volatility at Lowest Level Since April 2022

Recent weeks have seen mostly mild weather conditions, which have limited heating and cooling demand and resulted in minimal price changes. As a result, historic volatility in natural gas prices has reached its lowest level since April 2022. However, it’s important to note that historic volatility has reached both record highs and lows in the past.

Refinitiv:  Output Down, Demand to Rise

Data from Refinitiv shows a decline in average gas output in the U.S. lower 48 states in June. However, traders expect daily output to reach a preliminary low, marking the largest decline since December 2022.

With the anticipated warmer weather, Refinitiv forecasts an increase in U.S. gas demand, including exports. However, these forecasts are slightly lower than previous outlooks. Gas flows to the major U.S. LNG export plants have been reduced due to maintenance activities, and the daily flow rate is expected to reach a preliminary low. It’s worth noting that the record flows in April exceeded the LNG production capacity of the major plants.

Short-Term Forecast:  Heat Wave Driven Demand Coming

In summary, natural gas prices have faced downward pressure due to cooler weather data.  However, the expectation of heat waves in Texas and surrounding states continues to drive up the demand for natural gas for air conditioning. Maintenance-related disruptions have limited price gains, and the overall supply and demand outlook for natural gas remains dynamic. Traders and investors will closely monitor weather patterns, maintenance schedules, and daily production figures to navigate the ever-changing natural gas market.

Technical Analysis

Natural gas is edging lower on Wednesday, bringing a short-term rally to an end . However, sustaining the rally over the PIVOT at $2.190 for a second session is a sign of strength.

If this move creates enough upside momentum then we could see a near-term rally into $2.465 (R1). Traders have been waiting for a bullish catalyst and from the reaction, it looks as if the hot weather in Texas is it.

A sustained move under $2.190 will signal a resumption of the downtrend with $2.036 the next target.

For a look at all of today’s economic events, check out our economic calendar.