Natural Gas News: Traders Focusing on Potential Weather Impact on Prices

James Hyerczyk
Updated: Jun 21, 2024, 02:40 GMT+00:00

Key Points:

  • Natural gas futures resume trading with focus on U.S. heatwave and Gulf storm. Market sentiment remains cautious amid weather uncertainty.
  • Despite recent rallies, excessive heat is factored in. Traders now shift focus to 10-15 day weather forecasts for market direction.
  • Tropical storms typically lead to demand drops and LNG disruptions, affecting gas prices.
Natural Gas News

In this article:

U.S. Natural Gas Futures Decline on Rising Production and Weather Concerns

U.S. natural gas futures are trending lower as traders respond to weather forecasts and increased production levels. Uncertainty surrounding a tropical storm in the Gulf of Mexico also influences market sentiment, contributing to a bearish outlook.

At 12:15, natural gas is trading $2.848, down $0.061 or -2.10%.

Strong Production and Mixed Weather Impact

Natural gas futures began the week with a fourth consecutive decline due to strong production levels and increased flow capacity. Weather forecasts indicate high temperatures across the southern and eastern U.S. from June 18-24, with temperatures ranging from the upper 80s to 100s. Cities such as Chicago and those along the East Coast will experience highs in the mid-90s. In contrast, the Northwest and Northern Plains will see cooler temperatures and showers. Texas will experience cooling due to tropical rains, reducing overall demand.

U.S. Natural Gas Power Generation Increases

Natural gas-fired electricity generation in the U.S. has risen year-to-date compared to the same period last year, driven by higher power demand due to warmer temperatures and increased usage by data centers. According to the U.S. Energy Information Administration (EIA), natural gas is expected to provide around 42% of the nation’s electricity this year, with total consumption projected to grow by 3% in 2024 and another 2% in 2025. Between January 1 and June 17, U.S. natural gas power generation exceeded 30 million megawatt hours (MWh), marking the highest level since at least 2021.

Heatwave Impact on Prices

Despite recent rallies attributed to the heatwave, the market has already factored in the current excessive heat for the past two weeks. Traders should focus on the upcoming 10-15 day weather forecasts to gauge whether the heatwave will extend into early July or if temperatures will return to seasonal norms.

Professional vs. Amateur Trading Strategies

Professional traders recognize that hot summer temperatures are standard and remain cautious unless a prolonged heat dome significantly drives prices higher. Amateur traders might overreact to high temperatures, viewing them as bullish signals. Experienced traders understand that unless the heat persists, its impact on prices is limited.

Impact of Tropical Storms and Hurricanes

Tropical storms and hurricanes generally have a bearish effect on natural gas prices. These weather events often lead to demand destruction through cooling rains and can disrupt LNG plant operations, further reducing demand.

Market Forecast

Given the current conditions, the market is likely to see a short-term bearish outlook. Strong production, increased flow capacity, and mixed weather demand suggest that professionals will continue selling into rallies. The cooling effects and potential disruptions from the tropical storm may provide temporary support, but overall sentiment remains cautious. Traders should closely monitor the storm’s progression and its impact on supply and demand factors.

Technical Analysis

Daily Natural Gas

Natural Gas futures are lower on Thursday as bearish traders seek to re-establish the current downswing.

A trade through $2.759 will signal a resumption of the weakness with downside targets, a pivot at $2.652 and the uptrending 50-day moving average at $2.595.

On the upside, the bulls are targeting the 200-day moving average at $2.931 for a potential breakout.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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