Natural Gas Prices Forecast: Rebounding After Chesapeake Signals Production Cuts

Possible Bottoming Out in U.S. Natural Gas Market

We’re seeing a sharp rise in U.S. natural gas prices on Wednesday, but it’s all happening in a pretty volatile and unpredictable market. Prices are scraping a 3-1/2-year low, and it’s a mixed bag driving this – we’ve got supply changes, demand shifts, and those all-important technical indicators. But it’s not just that; outside policies and overall market sentiment are playing a big role too. This Wednesday, the market’s showing signs that we might be hitting a bottom.

At 13:11 GMT, US Natural Gas is trading $1.750, up $0.174 or +11.04%.

On the technical front, it looks like we’re in oversold territory. Prices have taken a dive over the last two weeks, but we’re not out of the woods until we see the big players, especially hedge funds, ease up on the sell button. There’s a lot going on – from slight upticks in futures to changes in weather and how much gas we’re pumping out – and it’s got traders watching like hawks for any sign of where things might head next.

Supply Adjustments on Deck

Major gas companies like Antero Resources, Comstock Resources, and Chesapeake Energy are scaling back production. Antero plans a 3% cut in 2024 and a 26% reduction in drilling budgets, resulting in fewer rigs and crews. Comstock is also reducing drilling efforts. Chesapeake Energy, responding to low gas prices, will lower its 2024 gas output, delay well activations, and reduce rig activities, cutting capital spending by 20%. Chesapeake’s projected production is 2.65-2.75 bcf/d, down from 3.43 bcf/d in Q4 2023.

Fundamental Factors and Limited Control

When it comes to calling the shots in the natural gas market, producers don’t have a ton of cards to play. Government rules, especially those around LNG exports, and the ever-fickle weather are big-time players in how the market moves. Right now, the U.S. and Europe are swimming in gas, mostly because the weather’s been on the milder side, hitting demand.

Investment Trends and Hedge Fund Moves

Lately, hedge funds have been betting against U.S. natural gas, expecting prices to keep dropping. They’ve been offloading positions big time in the past few weeks, leading to a serious cut in long bets. This downbeat mood comes from the tough time they’ve had in the past trying to nail market turns, not to mention the stuffed gas stores we’ve got in North America and Europe. But the way the market’s moving now, it looks like these hedge funds might be hitting the pause button on selling, maybe waiting for a chance to cover their shorts better, or they might just be done selling for now.

Short-Term Forecast and What to Watch

Looking ahead in the U.S. Natural Gas market, we’re balancing on a knife-edge between being technically oversold and what’s actually happening on the ground – think government policies, weather, production cuts and where the big money’s moving.

Prices are low, and there’s a chance for a tight squeeze on those short positions. So, traders, keep your eyes peeled on these factors for smart plays. Weather’s always a wildcard, so a bit of caution wouldn’t hurt. And you bet, traders looking for action are keeping a close watch on all this, especially with extremely cheap prices, to get a read on where the market might head next. The key decision is whether to chase the rally or wait to short again.

Technical Analysis

Natural gas futures are sharply higher on Wednesday after reaching $1.522 the previous session, just slightly above the significant psychological $1.50 level.

Without a major shift in the fundamentals, we’re calling this a ‘short squeeze’. This means the market ran out of sellers and the established shorts are willing to pay anything to book profits or cover their losses. This is the key reason why it is hard to predict when and where it will end.

Since the overall fundamentals are still bearish, your choice is to chase it or wait for it to stop. Chances are that bearish traders will be waiting for a favorable price to restablish short positions. The nearest resistance is the 50-day moving average at $2.001.