Natural Gas Prices Forecast: Facing Downward Pressure Ahead of EIA Storage Data

Highlights

• Mild Weather, Increased Production Lower Gas Prices
• EIA Report Projects Significant Storage Draw
• Spot Market Reacts to Cold Weather in New England

Overview

US Natural Gas futures are currently experiencing a downward trend, influenced primarily by mild weather conditions, increased production, and ample storage. As of 13:25 GMT, the futures are trading at 2.544, marking a decrease of 0.025 or -0.93%.

Weather and Storage Reports Impacting Prices

The market’s focus is on the upcoming Energy Information Administration (EIA) weekly storage report, with projections suggesting a significant draw of -105-110 Bcf, notably higher than the five-year average of -48 Bcf. This report comes amid a backdrop of colder-than-normal weather across much of the US. However, over the next seven days, national demand is expected to be light due to mild weather conditions, according to NatGasWeather.

Market Expectations and Spot Market Reactions

The futures market has been indicating for weeks that price spikes this winter are unlikely due to record production and high gas storage levels. In the spot market, cold weather in New England has driven up next-day power and gas prices to their highest since February, reflecting the region’s pipeline constraints and heavy reliance on gas for heating.

New England’s Energy Mix and Supply Challenges

In New England, about 54% of power generation comes from gas-fired plants. The cold weather has notably pushed next-day gas prices in New York to their highest since February, albeit lower than New England due to better access to piped gas.

Supply, Demand, and Future Projections

LSEG reports a slight decrease in average gas output in the Lower 48 U.S. states in early December. Looking ahead, US gas demand is expected to rise, with forecasts suggesting an increase from 121.8 bcfd this week to 126.2 bcfd next week. Additionally, gas flows to major US LNG export plants have seen a rise in December, indicating a robust export scenario amidst domestic market fluctuations.

Short-Term Forecast

The current trend in US Natural Gas futures points towards a bearish short-term outlook. Mild weather conditions across major regions are leading to reduced demand, which, when combined with increased production and high storage levels, is exerting downward pressure on prices. The expected draw in the EIA weekly storage report, though larger than the five-year average, may not be sufficient to counteract these bearish factors.

Technical Analysis

The current daily price of natural gas at 2.536 sits below both its 50-day moving average of 3.062 and its 200-day moving average of 2.629, indicating a bearish trend.

The price is also below the minor resistance level of 2.590, further reinforcing the bearish sentiment.

The market shows potential for further downside, especially if it continues to remain below these key moving averages and resistance levels. This positioning suggests that market sentiment for natural gas is currently bearish, with the potential for continued downward movement unless it breaks above these critical averages and resistance points.