Natural Gas Forecast: Weather Demand, Global Factors Push Prices to 5-Month High

Highlights

• U.S. gas futures hit five-month peak.
• Hot weather drives record power demand.
• Potential overseas LNG issues raising global energy concerns. 

Overview

U.S. natural gas futures have surged to a five-month high, reacting to both domestic and global factors. With an extended hotter-than-normal summer fueling demand, an anticipated increase in the weekly storage report, and global energy market disruptions, the U.S. natural gas sector is witnessing significant activity.

Domestic Storage and Demand

Before the imminent release of the government’s weekly storage report, expectations are high for the Energy Information Administration (EIA) to indicate a build of 24 Bcf. This comes after net injections into storage were noted at 14 Bcf for the week ending July 28, a significant deviation from the five-year average of 37 Bcf. Current working natural gas stocks stand at 3,001 Bcf, which is 12% above the five-year average. If the refill season continues at its current rate, we can anticipate an inventory of 3,917 Bcf by October 31, surpassing the five-year average.

Weather-Driven Demand

Persistent hot weather, especially in Texas, has seen power demand records shattered. Homes and businesses, running air conditioners non-stop due to the prolonged heatwave, are contributing to this demand. Forecasts suggest that the hot weather pattern will persist, driving the demand higher. This weather-driven demand is further reinforced by forecasts that suggest continuous high temperatures in the southern U.S. regions, with a special focus on Texas and California.

Global Influence and Outlook

European gas prices witnessed a sharp surge due to potential strike disruptions at Australian liquefied natural gas (LNG) facilities. This, combined with concerns over the global energy market, has been keenly observed by the White House. On the U.S. export front, while there’s a significant shift in LNG exports from Asia to Europe due to pricing dynamics, the U.S. is slated to become the world’s top LNG supplier by 2023, capitalizing on global price increases and supply disruptions.

Short-term Forecast

Bullish trends are anticipated in the short term. With sustained high demand, potential storage increases, and global energy market shifts, the U.S. natural gas market is poised for significant activity. Continued weather patterns further strengthen this outlook, with traders and speculators keenly watching for opportunities.

Technical Analysis

The current 4-hour price for Natural Gas stands at 2.971, reflecting a minor increase from the prior 4-hour price of 2.963. This commodity is trading above both the 200-4H moving average (2.671) and the 50-4H moving average (2.669), indicating a bullish short-term trend. The 14-4H RSI is at 75.52, suggesting the market is in an overbought state, implying potential caution for buyers.

Currently, Natural Gas is significantly above its main support zone (2.542 to 2.487) and is approaching its primary resistance area (3.027 to 3.091). Given these indicators, the market sentiment leans bullish, but approaching resistance and a high RSI suggests potential near-term volatility.