Smaller storage withdrawal and warmer weather affect natural gas prices.
LNG exports impacted by extreme cold and surging domestic prices.
Record gas demand but forecasts suggest a bearish short-term outlook.
Warmer Weather and Lower Demand Impact Prices
US natural gas futures faced a decline as the market reacted to a smaller-than-expected storage withdrawal and the anticipation of warmer weather in late January and early February. The US Energy Information Administration (EIA) reported a withdrawal of 154 billion cubic feet (bcf) of gas from storage, below analysts’ forecasts. This led to concerns about an oversupply, despite stocks being higher than last year and the five-year average.
Supply and Demand Outlook
The upcoming weather played a crucial role in market dynamics. A frigid cold front drove strong demand with subfreezing temperatures. However, the forecast for January 23 to February 2 indicated much warmer conditions, resulting in light demand and plummeting natural gas prices. Meteorologists projected a shift from colder-than-normal to mostly warmer-than-normal temperatures during this period.
US liquefied natural gas (LNG) export plants saw reduced gas flows due to extreme cold and surging domestic gas prices. Energy firms redirected some gas into the domestic market, cutting supplies. Daily gas demand reached a record high, contributing to price volatility. Front-month gas futures for February delivery settled at $2.697 per million British thermal units (mmBtu), their lowest since January 3.
Supply and Demand Analysis
Average gas output in the Lower 48 states decreased in January, and daily production showed recent fluctuations due to weather events. LSEG projected a drop in US gas demand in the Lower 48, including exports, as warmer weather approaches. However, gas demand had reached record levels, surpassing previous highs set during Winter Storm Elliott in December 2022.
Gas flows to major US LNG export plants also declined, reflecting market shifts caused by weather and demand dynamics.
Short-Term Forecast: Bearish
The combination of warmer weather, reduced demand, and ample supplies is likely to exert bearish pressure on US natural gas futures in the short term. Traders should monitor weather patterns and production levels for potential market impacts.
Daily Natural Gas
Natural gas futures are trading lower on Friday, solidifying a major loss for the week. The downside momentum indicates that the selling pressure could continue especially since it just crossed to the bearish side of the 50-day moving average on Thursday after taking out the 200-day moving average earlier in the week.
The new resistance is the 50-day at $2.729, followed by $2.874.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.