Natural Gas Price Fundamental Daily Forecast – High Production, Low Demand Supporting Bearish Tone

U.S. natural gas futures are inching higher on Tuesday, sitting just above a three-week low reached the previous session and major support area that could determine whether we have a late summer rally or sell-off. Weighing on the market at this time are forecasts calling for cooler weather and record output.

At 12:11 GMT, September natural gas futures are trading $7.734, up $0.145 or 1.91%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $26.28, down $1.29 or -4.68%.

Reuters is reporting that a drop in pipeline exports to Mexico from Texas is also keeping a lid on prices. This, along with the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas are combining to leave more gas in the United States for utilities to inject into stockpiles for next winter.

Short-Term Weather Outlook

According to NatGasWeather for August 9 -14:  “A weather system will track across the Midwest the next few days with showers and highs of 60s to 80s. The rest of the U.S. will be under hot high pressure to open the week with highs of 90s-100s, including mid-90s major East Coast cities.

The Midwest weather system will track into the East Wednesday through Sunday with highs of 70s and 80s to ease national demand despite hot high pressure holding strong over the western, central, and southern U.S.

Overall, strong to very strong demand Monday – Tuesday, then easing to moderate-high later in the week and this weekend.”

NatGasWeather added that “the coming 15-day pattern is still slightly bullish due to national CDDs being above normal most days. However, with much more comfortable temperatures arriving over the East August 10-20, national demand just won’t be nearly as intimidating as it’s been the past 6-weeks. To that point, weather patterns could disappoint.”

Refinitiv Supply/Demand Outlook

Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 97.9 bcfd so far in August from a record 96.7 bcfd in July.

With weather expected to be less hot, Refinitiv projected average U.S. gas demand, including exports, would fall from 100.5 bcfd this week to 97.7 bcfd next week. Those forecasts are lower than Refinitiv’s outlook on Friday.

Short-Term Forecast

Unless the weather turns decisively lower, it’s going to be hard to mount a meaningful rally over the short-run. Over the longer-term, the market is likely to be supported by the expected supply shortage heading into the winter heating months.

Furthermore, the average amount of gas flowing to U.S. LNG export plants has slid to 10.8 bcf so far in August from 10.9 bcfd in July. That compares with a monthly record of 12.9 bcfd in March.

U.S. LNG production has room to rise to about 13.8 bcfd, but with Freeport down until at least October, bullish traders are going to have to wait. Until then, gains could be capped. Prices could also drop further if output continues to rise.

Technically speaking, we’re looking for a minimum break into the support zone at $7.372 to $6.888. On the upside, the retracement zone at $8.485 to $8.705 is likely to be resistance.