Natural Gas Prices Forecast: EIA Report to Reflect Low Draw from Weak Demand

Key Points

• Natural gas futures slightly rise; market remains weak.
• EIA report estimates predict lighter than average storage draw.
• High production and warm weather contribute to price pressure.

Factors Influencing Weaker Prices

U.S. natural gas futures are seeing a slight uptick today, yet the market still remains near a three-year low. Contributing factors to this weak pricing include increased production levels, reduced weather-related demand, a halt in LNG exports, and high fuel storage quantities. Additionally, warmer weather forecasts suggest a decrease in heating demand.

At 12:57 GMT, Natural Gas Futures are trading $1.626, up $0.017 or +1.06%.

EIA Storage and Demand Trends

The focus is now on the EIA’s weekly storage report, with predictions indicating a draw of 65-68 Bcf, substantially lower than the five-year average of 149 Bcf. This lighter draw is due to milder weather across the U.S. and a 70% increase in wind energy generation compared to the previous week. Current gas inventories are about 15% above normal for this time of year.

Export and Production Trends

Gas flows to U.S. LNG export plants are expected to remain low, partly due to a shutdown at Freeport LNG’s Texas facility. Despite some energy firms like Comstock Resources reducing gas drilling due to low prices, overall gas output may still rise. This is because high oil prices are driving oil exploration in shale basins, which also produces associated gas.

Market Forecast

In the short term, natural gas prices may experience a relief rally. Factors supporting this include strong technical support near $1.61/MMBtu, an oversold front-month contract, and the potential resumption of operations at Freeport LNG. However, with the U.S. gas output currently high and demand projections fluctuating, the market outlook remains cautiously bearish.

Technical Analysis

Natural Gas futures are posting an inside move on Thursday. Although it’s too early to tell, this chart pattern could represent position-squaring ahead of today’s EIA report, or an early sign of a transition from extremely bearish to mildly bearish.

We’re not looking for a price per se to turn this market around, but rather a closing price reversal bottom chart pattern. The market needs news that will encourage the weaker shorts to aggressively cover their positions.

Unfortunately for the counter-trend bulls, any rally is likely to be over before your technical indicators give you a buy signal since the market is in “sell the rally” mode.