Natural Gas News: Facing Volatility Amid Contract Expiration, European Issues

U.S. Natural Gas Market Trends

U.S. natural gas futures are experiencing a downturn on Tuesday, with prices dropping below last week’s low of $1.522. This decline effectively erases the gains spurred by Chesapeake’s recent announcement of planned production cuts for 2024. Current market movements reflect traders’ responses to recent developments in Europe and the impending expiration of the March futures contract.

At 13:59 GMT, Natural Gas futures are trading $1.796, up $0.052 or +2.98%.

Supply and Demand Trends

The outlook for natural gas prices is currently constrained, primarily due to the unusually mild winter in the United States, which has led to reduced heating demand and increased supplies. Maxar Technologies forecasts significant warmth in the Midwest and eastern U.S., further impacting demand. Natural gas prices have hit a 3-1/2 year low, exacerbated by high inventory levels.

Compounding these supply issues is the shutdown of a production unit at the Freeport LNG natural gas export terminal in Texas. This incident is expected to curb U.S. natural gas exports, further inflating domestic inventories.

Weather Patterns and Price Implications

The current El Nino weather pattern, predicted to persist through March in the Northern Hemisphere, is contributing to above-average temperatures. This scenario, along with reduced snowfall in Canada, is exerting downward pressure on natural gas prices.

Electricity Output and Natural Gas Demand

An uptick in U.S. electricity output signals a positive trend for natural gas demand from utilities. However, the overall electricity output over the last 52 weeks shows a marginal year-on-year decrease.

Inventory and Drilling Activity

The latest EIA report indicates a smaller-than-average decrease in natural gas inventories. Current levels are significantly above both the year-on-year and five-year seasonal averages, suggesting robust supplies. Moreover, the number of active U.S. natural gas drilling rigs has seen a slight decrease, though it remains above recent lows.

Geopolitical Influences

Geopolitical developments, notably the stance of European nations on the Ukraine conflict, have caused volatility in natural gas markets. The potential halt of Russian gas deliveries via Ukraine by the end of 2024 raises concerns about Europe’s gas supply, with Asian buyers now entering the European market, further impacting prices.

Market Forecast

Considering the above factors, the short-term outlook for U.S. natural gas prices leans bearish. Elevated inventories, mild weather conditions, and geopolitical tensions are likely to keep prices under pressure. However, changes in export trends and international demand could introduce some variability in this trend.

Technical Analysis

Although the March natural gas futures contract traded at a new low for the year at $1.511, the new nearby April futures contract rolled over much higher at about $1.790. This creates a potentially bullish chart pattern since this price is well-above the February low at $1.607.

Currently, the price action suggests consolidation is taking place with $1.877 a potential trigger point for an upside breakout with the 50-day moving average at $2.081 the nearest target.