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Natural Gas Prices Forecast: Bearish Outlook Despite Consolidation Attempt
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US natural gas futures are consolidating amid cautious trading, weather shifts, and a bearish outlook driven by supply-demand changes.
Key Points
- Natural gas futures show consolidation within previous range.
- Weather trends significantly impact natural gas prices.
- Short-term natural gas outlook remains predominantly bearish.
Market Consolidation?
U.S. natural gas futures are showing signs of consolidation, trading within the previous day’s range. As of 12:59 GMT, prices stood at $2.392, down by 1.12%. This movement suggests a cautious market stance, with traders taking profits after a recent 25%+ sell-off and Monday’s gap lower opening. The market is also responding to technically oversold conditions, hinting at a potential bottoming action.
Weather Trends and Price Fluctuations
NatGasWeather analysis highlights the impact of weather trends on natural gas prices. Initially, warmer trends in early winter were overlooked, leading to a sharp price rally. However, the recent return to warmer conditions has reignited strong selling. The upcoming week forecasts a mix of rain, snow, and varying temperatures across the U.S., leading to light national demand, but not enough to change the trend.
Supply, Demand, and Seasonal Factors
The supply and demand trends are pivotal in understanding the current market situation. Despite a recent spike in gas flow to U.S. LNG export plants and a record high in daily gas demand due to extreme cold, the overall trend remains bearish. Notably, the March-April spread in futures prices, known as the “widow maker,” indicates a market shift away from expecting winter price spikes. This is further evidenced by March futures trading at a discount to April.
Short-Term Forecast
In the short term, the outlook for natural gas remains bearish. Warmer weather forecasts through early February suggest a decrease in demand, while production is expected to rise. The market’s reaction to these conditions, including any short-covering rallies, is likely to be viewed as opportunities for new short positions. This bearish sentiment is underpinned by the recent price trends and the evolving supply-demand landscape.
Technical Analysis
The early price action suggests natural gas futures are trying to consolidate after a steep sell-off. Technically, oversold conditions may also be contributing to the move with the market currently nestled just slightly below the mid-point of its rally from December 13 to January 9.
The market is also trading on the bearish side of its intermediate 50-day moving average at $2.697 and its long-term 200-day moving average at $3.066. These two levels are new resistance. Any rebound into the 50-day is likely to be met with a fresh round of selling pressure.
About the Author
James Hyerczykauthor
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.
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