Record outputs in October seen in the Lower 48 states.
U.S. targets top global LNG supplier spot by 2023.
Weather’s Influence on Natural Gas Markets
The U.S. natural gas market’s recent fluctuations stem directly from shifting weather predictions. Initial frosty conditions prompted surges in demand, but warmer weather forecasts later in the week softened the gas futures’ start.
This led to a sharply lower opening and performance on Monday. Today, traders are trying to recover some of that 3% loss with early strength.
Trading Patterns and Predictions
A report on Tuesday showed that Dec’23 natural gas futures dropped by 13¢ on Monday, affected by the warmer weekend trends and the negative roll yield accompanying the Nov’23 expiration.
Weather patterns revealed cold spikes interspersed with warm breaks. Notably, the period between Nov 13 and 15 is under observation for potential cold trends, similar to what was observed from Nov 9-11.
These potential shifts in temperatures can lead to pockets of volatility.
Supply Overwhelms the Market
October witnessed record outputs in the Lower 48 states, averaging 104.1 billion cubic feet per day. LSEG’s projections indicate a decrease in U.S. gas demand in the upcoming week, while pipeline exports to Mexico have seen a decline. However, a potential increase is anticipated with the initiation of LNG exports from New Fortress Energy’s Altamira plant this month.
Current Market Trends
Despite the warmer weather anticipation, the Henry Hub’s next-day prices surged by approximately 13% to around $3.24 per mmBtu on Monday. The futures market’s prevalent contango this year hints at lucrative arbitrage opportunities for keen traders. The spot market’s frequent trading below front-month futures is a bearish aspect influencing the overall market.
As the U.S. aims to top the global LNG supplier charts by 2023, the demand for U.S. exports remains solid, thanks to higher trading prices in Europe and Asia, as well as geopolitical issues like the Ukraine crisis.
The short-term forecast for U.S. natural gas leans bearish, but upcoming LNG projects and global demand dynamics could offer potential upside. Traders are advised to monitor weather data closely, given its potential to significantly shift market sentiment.
Early forecasts have traders positioning for a mild winter in the U.S., which usually means the bears will be selling rallies, capping gains like they did on Friday.
Daily Natural Gas
The current daily price of natural gas at 3.389 is hovering near the minor resistance level of 3.434, having risen slightly from the previous close of 3.352. It’s positioned above both the 200-day and 50-day moving averages, at 2.591 and 2.888 respectively, suggesting a potential ongoing bullish sentiment.
While the asset has cleared the minor support at 3.184, it remains crucial to watch how it reacts near the main support of 3.002 and the main resistance of 3.793. These key levels could offer significant insights into the next directional move.
Based on the above indicators, the current market sentiment is bullish.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.