Natural Gas Price Fundamental Daily Forecast – Remains On Track to Record Worst Start to Year on Record

Natural gas futures are trading nearly flat at the mid-session on Friday after testing a multi-month low earlier in the session. Forecasts calling for warmer-than-normal weather and lower than usual heating demand into late January continue to weigh on prices, but oversold technical conditions may have helped limit losses.

At 17:37 GMT, March natural gas futures are trading $3.432, up 0.006 or +0.18%. The United States Natural Gas Fund ETF (UNG) is at $12.07, up $0.11 or +0.92%.

At today’s intraday low of $3.283, the futures contract was down about 17% for the new year, putting it on track to record its worst start to a year on record. For the week, the front month is also down about 17%, this brings its current three-week loss to about 44%, the biggest in history.

Professional Traders Eyeing March – April Futures Contract Spread

The premium of futures for March over April, which the industry calls the widow maker, fell to a record low of 7 cents per mmBtu on Thursday as some in the market gave up hope that extreme cold would cause prices to spike later this winter, according to Reuters.

The gas industry calls the March-April spread the “widow maker” because rapid price move resulting from changing weather forecasts have knocked some speculators out of business, including the Amaranth hedge fund, which lost over $6 billion on gas futures in 2006, Reuters wrote.

Speculators use the March-April spread to bet on the winter heating season when demand for gas peaks.

When Will Freeport LNG Return?

As prices tumble, from low weather-driven demand, the market’s biggest uncertainty remains, when will Freeport LNG restart its liquefied natural gas (LNG) export plant in Texas? Although this won’t solve all of the market’s problems, it could trigger a jump in demand for U.S. gas. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, which is about 2% of U.S. daily production.

The Freeport LNG pipeline has been down since June 8.

Refinitiv Supply/Demand Outlook

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.2 bcfd so far in January, up from 96.7 bcfd in December but still below the monthly record of 99.9 bcfd in November 2022.

Surprisingly, Refinitiv projects average U.S. gas demand, including exports, would jump from 110.8 bcfd this week to 121.8 bcfd next week as temperatures ease ahead of what are usually the coldest weeks of the year. However, in two weeks, Refinitiv projected gas demand would ease to 120.5 bcfd as the weather turns milder.

Short-Term Outlook

Other than a late session short-covering rally ahead of the weekend, it’s hard to find anything bullish in the short-term picture. But there may be some light at the end of the tunnel.

Although the U.S. weather pattern over the next 15-days remains quite bearish, a colder pattern is possible about Feb. 3-10 according to the longer-range EC model. It’s nearly a month out, which means it’s still subject to large changes. Nonetheless, it’s still something to watch since any hint at bullish news could trigger a strong short-covering rally due to severely oversold conditions.