Natural Gas Prices Forecast: Bearish Momentum Persists with Gap Lower Opening

Key Points

• Last week’s sharp decline continued with Monday’s gap lower opening.
• Supply and demand factors contribute to the bearish sentiment.
• Anticipated warmer weather pattern drives short-term bearish outlook.

Bearish Momentum Persists with Monday’s Gap Lower Opening

The U.S. natural gas market remained entrenched in its bearish stance, extending the downward momentum observed throughout the previous week. Last week’s performance had seen prices plummet to a two-week low, predominantly due to predictions of milder weather conditions in late January and early February.

Notably, the front-month futures contract concluded the week with its lowest closing price since January 2, resulting in a significant weekly decline of nearly 22%, the most substantial weekly drop since February 2023. Today’s early weakness reached the December 21 low.

Monday’s commencement of the new trading week provided no relief, as the market opened with a noticeable gap lower. The persistent bearish sentiment that had gripped natural gas prices carried over into today’s session.

This gap lower opening served as a stark reminder of the formidable challenges confronting the natural gas market. Traders confronted the looming prospect of diminished demand amid the anticipated warmer weather pattern, further intensifying the bearish outlook.

Supply and Demand Under Pressure

The dynamics of supply and demand also added to the market’s woes. Financial company LSEG reported a decline in average gas output in the Lower 48 states for January, compared to the record high in December. While the market had hoped for a quick recovery, temporary disruptions from freeze-offs hindered this process. Additionally, gas flows to major U.S. LNG export plants decreased in January, further contributing to the market’s supply-side concerns.

Weather Remains a Key Factor

Weather forecasts remained a significant factor influencing market sentiment. The frigid cold front that swept across the United States resulted in strong demand leading up to Sunday. However, the outlook for a much warmer weather pattern from January 22 to February 2 added further pressure on natural gas prices, as expectations of lighter demand persisted.

Bearish Short-Term Outlook

Considering the bearish performance of the past week, coupled with Monday’s gap lower opening, the short-term outlook for the U.S. natural gas market remains bearish. The anticipated warmer weather pattern is set to significantly reduce heating demand, historically a pivotal factor in natural gas price movements during the winter months.

Furthermore, the data indicating a recovery in gas output, combined with a smaller-than-expected withdrawal from storage reported by the EIA, reinforces this bearish sentiment. Increased supply during periods of reduced demand typically exerts downward pressure on prices, setting the tone for a challenging week ahead.

Technical Analysis

The current daily price of Natural Gas Futures stands at 2.372, indicating a bearish trend compared to the previous daily close of 2.519.

The asset is below both the 200-day (3.069) and 50-day (2.712) moving averages, supporting the bearish sentiment. Minor resistance is observed at 2.874, with the main resistance level at 3.056.

Overall, the market sentiment for Natural Gas Futures is bearish.