Natural Gas Prices Forecast: Short-Sellers Continue to Tighten Grip

Key Points

• Increased Production and Mild Winter Lower Demand
• Biden’s Policy Creates Uncertainty in Natural Gas Sector
• Weather and Global Politics Impact U.S. LNG Exports

Natural gas futures are showing a pronounced downward trend at the beginning of this week, with current market trends pointing towards a continued bearish outlook. Despite some technical analysts suggesting the market might be oversold, the fundamentals tell a different story, with high production levels and mild winter demand applying downward pressure on prices.

At 13:00 GMT, Natural Gas Futures are trading $1.1835, down $0.012 or -0.65%.

Key Market Insights:

1. Surging Production: There’s been a notable increase in natural gas production, adding to the existing supply surplus. This, combined with a mild winter, has led to reduced domestic demand for heating, further exacerbating the situation.
2. Policy Uncertainties: The Biden administration’s recent pause on new natural gas projects has injected a degree of uncertainty into the market. This policy shift could impact LNG expansion and future production, contributing to market volatility.
3. Diminished Winter Demand: The warmer-than-expected weather conditions have played a significant role in decreasing natural gas demand, as less heating is required.
4. LNG Export Dynamics: Operational setbacks in key LNG export plants have led to a downturn in U.S. LNG export capacity, impacting the market.
5. Market Reaction: Last week, natural gas futures settled at a notably low point of $1.847, down by 11.16%. This drop reflects the intense selling pressure fueled by the factors above.

Short-Term Forecast

The immediate outlook for natural gas remains bearish. The combination of continued warm weather, robust production, and market responses to policy shifts suggests that prices may stay subdued.

 Key factors to watch include:

• Weather Patterns: The forecasted warmer weather is likely to maintain reduced demand for heating gas.
• Production Trends: Despite discussions on reducing gas drilling, high crude oil prices are encouraging more oil and gas extraction, especially in shale regions.
• Policy Updates: Any changes in the Biden administration’s stance on LNG projects could significantly affect market sentiment.
• Supply-Demand Balance: With high storage levels and low demand, the natural gas market is adjusting to this new equilibrium.
• Global Market Factors: Changes in global politics and energy demand could indirectly influence U.S. LNG exports and domestic gas prices.

Traders should remain vigilant, as the market is sensitive to shifts in weather, policy, and global trends. The current bearish trend is strong, but market conditions are fluid and subject to rapid changes, particularly if oversold conditions lead to short-covering or counter-trend buying.

Technical Analysis

Natural gas is under light pressure on Monday. Taking out Friday’s low at $1.187 signaled a resumption of the well-entrenched downtrend.

A trade through $1.885 will create a new minor bottom, which right now is potentially $1.783. This won’t change the trend, but it could alleviate some of the downside pressure.

A higher close today will form a daily closing price reversal bottom. If confirmed, this could lead to a 2 to 3 day counter-trend rally.