Natural Gas Prices Forecast: Large Weekly Storage Drop Fails to Rally Prices

Key Points

• Natural gas futures fall, continuing a two-week decline.
• Significant storage drop doesn’t boost natural gas prices.
• Weather forecasts suggest light national demand ahead.

U.S. Natural Gas Futures Decline Amid Storage and Production Trends

U.S. natural gas futures are experiencing notable weakness on Friday, continuing a downward trend that began nearly two weeks ago. As of 13:55 GMT, the futures are trading at $2.529, marking a decrease of $0.042 or -1.63%.

Storage and Supply Factors

Despite the largest weekly decline in natural gas supplies in storage since February 2021, prices have not rallied. The Energy Information Administration (EIA) reported a substantial drop of 326 billion cubic feet (bcf) for the week ending January 19. This decline, significant though it is, fell within analyst expectations and did not provide the shock value that might have reversed the price trend.

Production and Consumption Trends

U.S. dry natural gas production recently dipped to 88 bcf per day, a decrease from the 30-day average of 105 bcf per day, influenced by production challenges in key regions like the Permian Basin and Haynesville. Conversely, U.S. consumption of natural gas rose to 123.4 bcf for the week of January 11-17, up from 102 bcf a week earlier and 95.4 bcf a year ago.

Price Volatility and Outlook

Natural gas prices have shown volatility this winter, driven by fluctuating weather conditions and production levels. Despite a record-high production in December 2023, the overall season-to-date heating-degree days are below last year’s levels and the five-year average, suggesting limited upward potential for prices. However, market analysts note that another significant cold spell could trigger a rise in prices, echoing the winter’s ongoing price volatility.

Forecast and Future Withdrawals

Looking ahead, weather forecasts for January 25-31 indicate an active pattern across the U.S. with varied temperatures, likely leading to very light national demand. S&P Global Commodity Insights projects a substantial withdrawal of 228 bcf from U.S. gas storage for the week ending January 25, which would exceed the five-year average by 23% and be significantly larger than the withdrawal a year ago.

In summary, while the U.S. natural gas market is currently facing downward pressure on prices due to a combination of storage dynamics, production fluctuations, and weather patterns, the potential for future cold spells keeps the market on a cautious and watchful footing. We expect an overall bearish tone driven by ample supplies and seasonal weather.

Technical Analysis

U.S. natural gas futures are lower on Friday after failing to hold the 50-day moving average at $2.667, making this level new resistance.

Look for the downtrend to resume as long as prices remain below the 50-day MA with a restest of the January 22 bottom at $2.311 likely over the near-term.