Natural Gas Prices Forecast: Pressured by Ample Storage, Mild Weather

Highlights

• Natural gas prices drop for the third week.
• Record U.S. production, mild weather lower demand.
• Global factors increasingly sway European gas prices.

Last Week’s Price Action

Natural gas prices experienced a notable decline last week, marking their third consecutive weekly drop. U.S. natural gas futures fell to a two-month low on Friday, settling 3.2 cents lower at $2.87 per million British thermal units. This downturn is attributed to ample storage levels and expectations of mild weather, diminishing the demand for heating.

Supply and Production Trends

The U.S. Energy Information Administration reported a modest withdrawal of 7 billion cubic feet (bcf) from gas storage, significantly lower than last year’s and the five-year average. Furthermore, LSEG noted that average gas output in the Lower 48 U.S. states has reached record highs in November. This robust production, coupled with substantial gas in storage, suggests that the market might not experience winter price spikes.

Weather Forecasts and Impact

The weather plays a crucial role in natural gas demand. The onset of El Nino suggests a mild to warm winter ahead, which could reduce heating demand. This mild weather forecast has been a key factor in the recent price decline of natural gas.

LNG Demand and Global Influence

LNG exports from the U.S. have been increasing, with November averages surpassing previous records. The U.S. is poised to become the largest global LNG supplier in 2023, catering to heightened demand due to disruptions linked to the war in Ukraine. However, the high production and storage levels in the U.S. indicate that domestic LNG demand might not significantly influence natural gas prices in the near term.

European Market Stability

In Europe, natural gas markets are more stable compared to last year, thanks to full storage and consistent LNG supply. Despite this stability, Europe’s natural gas prices are increasingly influenced by global factors. Events like a strike at an Australian LNG terminal or increased demand in Asia can instantly impact European natural gas prices.

Looking Ahead: Uncertainty and Predictability

As the winter season approaches, uncertainties in weather and global supply dynamics continue to pose risks for natural gas markets. While current storage levels and production rates suggest a bearish trend for natural gas prices, unpredictable weather patterns and international supply disruptions could introduce volatility. Therefore, markets and governments must remain vigilant, as the balance between supply and demand remains delicate and subject to rapid changes.