Natural Gas Prices Forecast: Pressured by Record Production and Storage Surplus

Highlights

• Natural gas futures drop due to unexpected storage increase.
• Storage additions surpass forecasts, indicating mild weather impact.
• Record high production influences U.S. gas market trend. 

U.S. Natural Gas Futures Decline on Storage Build and Record Output

U.S. natural gas futures are under pressure for a second session on Friday as traders continued to react to a larger-than-expected weekly storage build and record-high production levels. This decline occurs during a period when utilities typically begin withdrawing gas from storage for heating, marking a notable shift in the normal trend.

At 13:47 GMT, natural gas futures are trading 3.015, down 0.047 or -1.57%.

Storage and Production Trends

The U.S. Energy Information Administration (EIA) reported a substantial addition of 60 billion cubic feet (bcf) of gas to storage in the week ending November 10, exceeding analysts’ expectations of a 40-bcf build.

This injection contrasts sharply with the 6 bcf withdrawal in the previous week and is higher than both last year’s figure and the five-year average for the same week. Analysts attribute this trend to mild weather conditions that have reduced heating demand, coupled with record gas output.

Market Sentiment and Price Trends

In the gas market, there’s a growing sentiment that prices might not rise significantly even with colder weather approaching. The premium of January futures over December has narrowed significantly, reflecting lowered expectations for price hikes.

Historically, November has often seen the highest gas prices of the winter season, contrary to expectations of peaks in colder months like January.

Supply and Demand Outlook

Current production in the Lower 48 U.S. states has reached new highs, averaging 107.2 billion cubic feet per day (bcfd) in November. Despite a recent dip in output, meteorological forecasts suggest warmer-than-normal weather until late November, with a turn to colder temperatures thereafter. This expected change in weather is likely to increase gas demand, including exports, in the coming weeks.

LNG Export Flows

Gas flows to major U.S. liquefied natural gas (LNG) export plants have risen this November, indicating robust export activity. The month’s average of 14.2 bcfd surpasses October’s figures and sets a new monthly record. This increase in LNG exports, alongside domestic demand trends, will be key factors in shaping the U.S. natural gas market in the short term.

Technical Analysis

The current daily price of natural gas is 3.015, which places it above the 200-day moving average of 2.605, indicating a long-term upward trend. However, it’s below the 50-day moving average of 3.045, suggesting some weakness in the shorter term. This mixed position between the two averages could imply a period of consolidation in the market.

The current price is just above the minor support level of 3.002, hinting at a fragile support zone. If it holds, the price may rebound towards the minor resistance at 3.184. However, should it break this support, a further decline towards the main support at 2.838 could be possible. The main resistance level stands at 3.434.

Given this positioning, the market sentiment for natural gas appears cautiously bearish in the short term, but with a potential for recovery if key support levels hold.

The wide distance between the two moving averages suggests that the 50-day moving average could be the trigger point for an acceleration to the downside.