Natural Gas News: Futures Rally as Supply Tightens and Weather Boosts Demand

Natural Gas Futures Rally Amid Supply Concerns and Rising Demand

U.S. natural gas futures edged higher on Tuesday as traders anticipated increased weather-driven demand. This follows a breakout rally on Monday, confirming last week’s closing price reversal bottom. The rally is supported by a significant rise in bullish bets from money managers, with data showing net long positions at a six-week high in early August. The surge in bullish sentiment is attributed to the unwinding of short positions and expectations of increased cooling demand across the Lower 48 states, attracting new buyers to the market.

At 12:13 GMT, Natural Gas Futures are trading $2.222, up $0.033 or +1.51%.

Bullish Momentum Builds as Supply Tightens

The natural gas market saw a fifth consecutive session of gains on Monday, driven by the possibility of a rare summer storage draw later this week. This development highlights lower output alongside decent demand, tightening the supply-demand balance. Despite ample supply in the market, signs of fundamental shifts, including reduced production and higher cash prices, have drawn the attention of money managers, fueling the recent rally in natural gas futures.

Weather Patterns to Drive Increased Demand

Weather forecasts are playing a significant role in the current market dynamics. According to NatGasWeather, moderate national demand is expected over the next three days as weather systems track across the northern U.S., bringing highs of 60s to 80s. However, demand is projected to rise to stronger levels in the following 4-15 day period, as much of the interior U.S. experiences highs of 80s to 100s, particularly in the Southwest deserts and Texas. This expected increase in demand is contributing to the bullish outlook in the natural gas market.

Russian Gas Supplies to Europe in Question

According to Reuters, longer-term, the stability of Russian gas supplies to Europe remains uncertain. Despite the ongoing conflict in Ukraine, Russia continues to supply gas through the Urengoy-Pomary-Uzhgorod pipeline. However, the future of this transit route is in doubt, with the current agreement set to expire at the end of 2024. Europe has increasingly turned to liquefied natural gas (LNG) imports from the U.S. and other countries to reduce reliance on Russian gas, a trend likely to continue as geopolitical tensions persist.

Market Forecast: Bullish Outlook

Given the tightening supply-demand balance and the anticipated increase in cooling demand, the short-term outlook for U.S. natural gas futures remains bullish. Traders should watch for continued weather-driven demand increases and potential disruptions in global supply, particularly from Russia, as key factors that could further support prices.

Technical Analysis

Natural gas is trying to establish new higher support on the strong side of a daily pivot at $2.149. If successful, traders will then attempt to power on into the nearest resistance at $2.315. This is also a potential trigger point for an acceleration into the down-sloping 50-day moving average at $2.486.

A failure to hold $2.149 could trigger a sharp break into $2.069.