Natural Gas Prices Forecast: Bullish Turn as Output Cuts Spur Weekly Reversal

A Bullish Outlook Emerges

U.S. natural gas prices, following a prolonged bearish trend, are showing signs of stabilization and potential upward momentum. The market is poised to conclude the week on a higher note, hinting at the emergence of a solid foundation for future growth. Technical indicators play a crucial role here. The focus is on the short-term range of $1.522 to $1.792, with the retracement zone between $1.657 and $1.625 being a critical area for attracting buyers. This zone is pivotal; if buyers are engaged, it could signal a strengthening market.

At 13:00 GMT, US Natural Gas is trading $1.660, down $0.072 or -4.16%. The low of the session is $1.637.

Short-Covering Rally and Buyer Engagement

The initial rally earlier this week, primarily driven by short-covering, was a necessary step in reversing the downtrend. However, the true test lies in the market’s response to the subsequent retracement. A successful attraction of buyers in the retracement zone could indicate that a robust bottom is forming, laying the groundwork for a bullish phase.

Price Stabilization and Production Cuts

The recent price stabilization, spurred by Chesapeake Energy Corp.’s production cut announcement, has injected optimism into the market. Chesapeake’s decision to reduce output by about 20% this year catalyzed a significant price surge, marking the biggest single-day gain in over 18 months. This strategic move not only stemmed the price decline but also signaled a potential shift in market direction.

Inventory and Demand Factors

Despite the bullish signals, traders should remain cognizant of the inventory and demand field. The latest EIA report indicates that natural gas inventories are still substantially above the five-year average. While this surplus presents a challenge, the potential for other producers to follow Chesapeake’s lead in cutting production could gradually alleviate this pressure. Additionally, weather forecasts suggest a mild demand scenario until the onset of the air-conditioning season in May, which could keep prices in check for the short term.

Short-Term Forecast

Given the current market conditions, the outlook for natural gas is cautiously bullish. The key lies in the market’s ability to sustain buyer interest in the retracement zone. If this is achieved, along with continued production discipline among major players, the market could witness a steady upward trend. However, traders should closely monitor inventory levels and weather patterns, as these will be instrumental in shaping the market’s direction in the coming weeks.

Technical Analysis

U.S. natural gas futures are lower on Friday, but remain in a position to close higher for the week. It’s the potential for a weekly closing price reversal bottom that current short position traders fear. This chart pattern could shift sentiment to bullish if there is a confirmation rally next week.

From a daily perspective, the short-term range is $1.522 to $1.792. It’s 50% to 61.8% retracement zone at $1.657 to $1.625 has to attract buyers.

Traditionally, following a prolonged move down in terms of price and time, the first rally from a low is usually short-covering, that move took place Tuesday to Wednesday. The second move is a retracement of the short-covering rally. If the low is a good one then buyers are likely to come in on the correction into the retracement zone. That may be taking place at this time.