Natural Gas Prices Forecast: Pressured by Bearish EIA Outlook, Warm Forecast

Highlights

• Mild US weather leads to decreased natural gas demand.
• EIA reports high output, affecting natural gas prices.
• High inventory levels contribute to price decrease.
• Oversold market conditions might lead to short-lived price spikes.

Natural Gas Futures Face Downward Pressure

Natural gas futures are poised to open lower on Wednesday, influenced by bearish factors such as the latest EIA outlook report and forecasts for warmer US temperatures. January futures are currently trading at $2.292, reflecting a decrease.

Weather Impact and EIA Report

The US is set to experience milder temperatures, particularly in the southern regions, leading to a very light demand for natural gas in the next seven days, according to NatGasWeather.com. Over the next two weeks, warmer-than-normal temperatures are expected across most of the US, reducing heating demand significantly. This weather outlook, coupled with the EIA’s prediction of record high US natural gas output, is exerting downward pressure on prices.

Market Reaction and Price Trends

The market is responding to these developments with natural gas futures hovering just above $2.30 per MMBtu, marking a substantial decrease over the past month and year to date. This trend contrasts sharply with the high prices seen last year in the US and Europe following Russia’s invasion of Ukraine.

Outlook and Forecasts

The EIA has adjusted its Henry Hub spot natural gas price forecast for the upcoming winter, citing strong production and reduced heating demand due to the warmer start to the season. Inventory levels also remain high, further contributing to the downward price trend.

However, market analysts like Dennis Kissler of BOK Financial and Irina Tsukerman of Scarab Rising suggest that a shift in market conditions, such as a cold blast or changes in the green energy sector, could lead to price fluctuations in the future, but nothing is on the horizon at this time.

If there is a bounce due to oversold technical conditions, it would likely be short-lived and met with fresh shorting pressure.

Technical Analysis

The natural gas market is currently exhibiting bearish sentiment. The current daily price of 2.308 is significantly below both the 200-day moving average of 3.292 and the 50-day moving average of 3.227, indicating a downtrend. This positioning beneath key moving averages typically suggests a lack of bullish momentum.

Moreover, the price is currently below the minor resistance level of 2.590 and far from the main resistance at 2.690, reinforcing the bearish outlook. The absence of any immediate support levels suggests that there might be further downside potential, with no significant technical barriers to prevent a decline.

Overall, the natural gas market’s technical indicators point towards a continued bearish trend in the short term.