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Natural Gas Price Fundamental Daily Forecast – Bearish Demand Outlook Leads to Test of 10-Week Low

By:
James Hyerczyk
Updated: Sep 23, 2022, 19:27 UTC

Natural gas usage is expected to come in lower because of favorable weather conditions, outages at two LNG plants and a demand-destroying hurricane .

Natural Gas

In this article:

U.S. natural gas futures are trading at their lowest level since July 15 late Friday on expectations temperatures will remain mild into early October, pressuring both heating and cooling demand and allowing utilities to inject large amounts of gas into storage over the next few weeks.

That change in the weather after a brutally hot summer was also boosting the amount of wind power available, allowing generators to cut back on the amount of gas they burn to produce electricity, Reuters reported.

At 17:03 GMT, November natural gas futures are at $7.006, down $0.187 or -2.60%. The United States Natural Gas Fund ETF (UNG) is at $24.10, down $1.05 or -4.17%.

Lower LNG Demand Weighing on Prices

Demand is also expected to drop when the Cove Point liquefied natural gas (LNG) plant in Maryland shuts for a couple weeks of maintenance. Cove Point is consuming about 0.8 billion cubic feet per day (bcfd) of gas.

This is on top of the three month decline in demand due to the ongoing outage at the Freeport LNG export in Texas which has left more gas in the United States for utilities to inject into stockpiles for next winter.

Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 bcfd of gas before it shut on June 8. Freeport LNG expects the facility to return to at least partial service in early to mid-November.

Gulf of Mexico Hurricane Poses Another Problem for Demand

The U.S. National Hurricane Center (NHC) warned that Tropical Depression 9 would strengthen into a hurricane as it moves from the Caribbean Sea to the Gulf of Mexico over the next few days and hits South Florida on Wednesday.

With much of the nation’s gas production located away from the Gulf of Mexico in shale basins like the Permian in West Texas and Appalachia in Pennsylvania, analysts said tropical storms were more demand-destroying events since they knock out power and cause LNG export terminals to shut.

Bearish EIA Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported on Thursday that domestic natural gas supplies rose by 103 billion cubic feet (Bcf) for the week-ended Sept. 16. That compared with the consensus forecast for an increase of 92 Bcf.

Ahead of the report, Natural Gas Intelligence reported that the results of a Reuters poll ranged from predicted increases of 86 Bcf to 99 Bcf, with a median of 93 Bcf. Additionally, a Bloomberg survey spanned estimates of 80 Bcf to 104 Bcf, landing at a median expectation of an injection of 95 Bcf.

The estimates compare with the year-earlier injection of 77 Bcf and a five-year average of 81 Bcf.

Total working gas stocks in storage stand at 2.874 trillion cubic feet (Tcf), down 197 Bcf from a year ago and 332 Bcf below the five-year average, the government said.

Short-Term Outlook

Our short-term outlook is bearish from both technical and fundamental perspectives.

Technically, the main trend is down on the daily chart. Furthermore, November natural gas is trading on the weak side of a major support area, making $7.213 to $7.753 new resistance. The daily chart also indicates the next major down side target is all the way down at $5.465.

Fundamentally, demand is expected to come in lower because of favorable weather conditions, outages at two LNG plants and a hurricane that could lead to reduced cooling requirements.

For a look at all of today’s economic events, check out our economic calendar.

 

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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