Natural Gas Forecast: Weather Forecasts Influence Ahead of EIA Storage Report

Highlights

• Natural gas prices to be affected by storage report, weather, and demand.
• Upward price trajectory due to increasing cooling degree days.
• Power sector demand and LNG exports influence market dynamics.

Overview

Natural gas prices are edging higher on Thursday as traders eagerly anticipate the release of the U.S. Energy Information Administration’s (EIA) weekly gas storage report. This report, which is scheduled for release at 14:30 GMT, could serve as the next catalyst for price movements. Market surveys suggest a modest build of +113-116 billion cubic feet (Bcf), slightly larger than the 5-year average of +100 Bcf.

Short-Term:  Active Weather Patterns

In terms of weather conditions, the southern United States experienced cooler temperatures than usual, while the northern region saw warmer conditions. Taking these factors into account, we anticipate a build of +121 Bcf in gas storage. The Memorial Day Holiday and increased wind and solar energy generation were expected to have contributed to lighter demand during this period.

Looking ahead, the short-term weather outlook from June 8-14, as reported by NatGasWeather, indicates an active weather pattern across the United States. Showers, thunderstorms, and comfortable temperatures ranging from the 60s to 80s will result in light demand, except for localized hotter areas in the southern U.S. The Northeast can expect the coolest temperatures, with lows dipping into the 40s over the next few nights.

Increasing Cooling Degree Days Boost Prices

Recent shifts in weather forecasts have fueled an upward trajectory in prices. Data provider Refinitiv predicts an increase in the number of cooling degree days (CDDs) over the next two weeks. The CDDs are forecasted to rise to 164, surpassing the 30-year normal of 147 and the previous day’s forecast of 153. This uptick in CDDs indicates a higher demand for cooling and, subsequently, for natural gas from the power sector.

Gas Consumption Increase Predicted

On Wednesday, U.S. natural gas futures surged by over 2% to reach a one-week high due to the projection of warmer weather. This outlook bolstered the demand outlook for natural gas as homes and businesses rely on the fuel for cooling purposes. Refinitiv estimates that natural gas consumption by the U.S. power sector will increase from 31.8 billion cubic feet per day (bcfd) to 37.6 bcfd this week, driving overall demand to 95.7 bcfd from 90.9 bcfd.

Rising Power Generator Demand

The rising demand from power generators for electricity production, particularly for air conditioning use, has limited the amount of natural gas available for storage during the peak winter heating season. Consequently, this reduction in supply contributes to price increases. However, it is worth noting that certain factors may keep prices below $2.40 for the July contract, such as the maintenance-related downtime of liquefied natural gas (LNG) terminals.

LNG Export Plant Maintenance

So far in June, gas flows to the seven major U.S. LNG export plants have averaged 12.0 bcfd, down from 13.0 bcfd in May. This decrease is primarily due to maintenance activities at several facilities, including Cheniere Energy Inc’s Sabine Pass in Louisiana. Additionally, production levels are expected to remain relatively stagnant at 102.2 bcfd this week, compared to 103 bcfd last week, before slightly increasing to 102.6 bcfd next week, according to Refinitiv data.

Bullish EIA Data, Weather Could Lift Prices

In conclusion, natural gas prices are influenced by various factors, including the upcoming EIA storage report, weather patterns, demand from the power sector, LNG export flows, and production levels. These factors create a dynamic market environment, with traders closely monitoring developments to make informed decisions.

Technical Analysis

Natural gas is edging higher on Thursday, while holding above the PIVOT at $2.190. Yesterday’s breakout through the pivot was likely fueled by short-covering. Nonetheless, in order to generate any near-term upside momentum, the weaker shorts have to be taken out.

The big test for counter-trend bullish traders is whether new buyers come in to support the market on a retest of $2.190. If they do then a secondary higher bottom will form. If this move creates enough upside momentum then we could see a near-term rally into $2.465 (R1).

A failure to hold $2.190 will signal a resumption of the downtrend with $2.036 the next target.

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