Natural Gas Prices Forecast: External Factors Dictate Market’s Volatile Trajectory

Highlights

• U.S. gas futures decline due to reduced LNG flows.
• Warmer temperatures forecasted; demand projections stable.
• Volatility expected with Oct’23 contract expiration.

U.S. Natural Gas Outlook Amid External Influences

Natural gas futures in the U.S. are edging lower on Monday, primarily due to decreased flows to liquefied natural gas (LNG) export facilities.

Maintenance-driven reduced LNG flows were balanced out by a surge in domestic natural gas consumption, highlighted Gary Cunningham, Tradition Energy’s director of market research. Contributing to the decline in LNG feed was the shutdown of Berkshire Hathaway Energy’s 0.8-bcfd Cove Point in Maryland for yearly maintenance.

At 12:12 GMT, December natural gas futures are trading $3.264, down $0.077 or -2.30%.

Weather & Demand Projections

Over the next two weeks, meteorologists anticipate warmer-than-average temperatures across the Lower 48 states. To gauge demand for heating or cooling homes and businesses, Total Degree Days use a system comparing daily average temperatures to a benchmark of 65 degrees Fahrenheit (18°C). On Monday, projections edged higher to 137 from 131 the day before.

However, data insights from LSEG suggest that U.S. gas demand, inclusive of exports, will hover around 94.7 billion cubic feet per day (bcfd) this week, slightly increasing to 94.9 bcfd next week.

Production & Infrastructure Dynamics

September has seen an average gas output in the Lower 48 states drop slightly to 102.1 bcfd from August’s record 102.3 bcfd.

A supplementary note by analysts from Ritterbusch and Associates states, “There’s an anticipation of a gradual uptick in output into next year, which could act as a minor counter to unexpected cold periods.”

A recent development potentially impacting future output is the reduction in oil and gas rigs last week, as reported by Baker Hughes, marking the first decline in three weeks.

Market Forecast & Volatility

While the market is set to experience minimal price fluctuations in the coming month, unexpected shifts in demand or weather patterns could introduce volatility. Additionally, this week is gearing up for fluctuations with the expiration of the Oct’23 contracts.

Despite weather data signaling low demand over the next 15 days, prices seem more sensitive to external news events, such as infrastructure maintenance, LNG disruptions, and weekly EIA reports. The imminent expiration of Oct’23 contracts might also play a crucial role in dictating market dynamics.

In conclusion, with several factors in play, the short-term outlook for the U.S. natural gas market appears cautiously bearish, but with underlying vulnerabilities that could tilt the balance. In other words, look for the downside pressure to continue with pockets of volatility and reversals of trend possible.