Natural Gas Prices Forecast: A Bullish Start but a Bearish Finish, What’s Next?

Highlights

• U.S. natural gas futures kicked off the week at an eight-month high of $3.376 per mmBtu, fueled by rising exports and cooler weather forecasts.
• Midweek data revealed a record-high monthly gas output in the Lower 48, yet failed to sustain bullish momentum due to warmer weather ahead.
• By Friday, front-month gas futures slumped to a one-week low of $3.236 per mmBtu, marred by mild weather and dwindling exports to Mexico.

A Rollercoaster Week: U.S. Natural Gas Futures End in Bearish Territory

Monday’s Momentum Fizzles Out

The week began on a bullish note for U.S. natural gas futures, which saw a fresh eight-month high at $3.376 per mmBtu. A confluence of factors, including rising exports and forecasts for cooler weather, drove prices higher. Tensions in the Middle East and possible worker strikes at Australian LNG export plants added more fuel to the rally.

Supply and Demand Dynamics

Midweek data from LSEG revealed some key figures. Average gas output in the Lower 48 states rose to a monthly record high, matching levels last seen in July. Despite the decline in pipeline exports to Mexico, the U.S. saw increased gas flows to its seven major LNG export plants. However, with warmer weather patterns forecasted, these bullish factors failed to sustain the momentum.

Friday’s Downfall

By Friday, the market took a bearish turn. Front-month gas futures for November delivery on the NYMEX plummeted to a one-week low of $3.236 per mmBtu. Mild weather forecasts through late October, coupled with a drop in exports to Mexico, pushed both heating and cooling demand low. After hitting technically overbought territory with an RSI above 70, the front-month contract corrected itself for the first time in seven days.

Market Technicals

With the front-month in a downtrend for the third consecutive day, traders have reason to exercise caution. The mild weather outlook led to a reduction in the premium of futures for November over December, hitting its lowest point since September 2022. The spot market, a leading indicator, has spent 157 of the 192 trading days this year below the front-month, exerting downward pressure on futures.

Weekly Forecast:  Bearish

For the week ahead, the outlook remains bearish. Warmer trends indicated by the GFS and EC models are likely to further suppress heating demand. With LSEG projecting a modest rise in U.S. gas demand for the coming week, the bearish sentiment is likely to persist.

In summary, while the week kicked off with strong bullish indicators, a series of developments have steered the market into a bearish lane. Investors and traders should keep a close eye on weather patterns and supply metrics as they navigate the choppy waters of the natural gas market.