Natural Gas Prices Forecast: Testing 7-Week Low Ahead of EIA Storage Report

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Published: Nov 22, 2023, 12:27 UTC

Natural gas hits 7-week low amid record production, warmer trends, and EIA's forecast of smaller stockpile build versus usual draw.

Highlights

U.S. natural gas futures drop to October lows.
EIA expected to report modest stockpile increase.
Weather changes, high output influence market dynamics.

U.S. Natural Gas Futures Dip

U.S. natural gas futures experienced a downturn on Wednesday, hitting lows not seen since early October. This decline is attributed to record-high production levels, enabling utilities to continue injecting gas into storage until late November. Typically, this period sees a shift to extracting gas for heating needs.

Stockpiles and Market Volatility

Market volatility is anticipated today due to positioning before the Thanksgiving holiday and the anticipated early release of the EIA report. This report is expected to show a modest build in gas stockpiles, contrasting the usual draw seen over the past five years.

Survey averages suggest a build of +2 to +7 Bcf, much lighter than the 5-year average draw -53 Bcf. It was much warmer vs normal over most of the US last week and why our data suggests a build of +2 Bcf. If close, this will increase surpluses from +203 Bcf to near +258 Bcf, along with end of injection season supplies at 3,835 Bcf.

Warmer-than-average temperatures across most of the U.S. last week are a contributing factor to the minimal increase in stockpiles.

Weather Influence and Spot Market Trends

Weather forecasts are predicting a shift to colder temperatures starting November 24, which is expected to drive up heating demand in the coming weeks. This change could provide some upward support to natural gas prices.

However, the influence of these weather patterns is somewhat mitigated by lower spot prices at the Henry Hub benchmark, which have kept a lid on futures prices. This price disparity between spot and front-month futures has opened arbitrage opportunities for traders, who are buying lower-priced spot gas for storage and later sale.

Concurrently, gas output in the U.S. has surged to record levels, with daily production reaching a historic high of 108.9 billion cubic feet. This increase in supply, coupled with the forecasted rise in demand due to cooler weather, is expected to elevate national gas demand.

LSEG supports this view, projecting a substantial rise in U.S. gas demand, including exports, in the imminent week. Additionally, there has been a notable increase in gas flows to major U.S. LNG export plants, signaling strong export activity.

Future Market Outlook

With gas production at an all-time high and substantial storage, traders seem less hopeful of winter price spikes. The futures market reflects this sentiment, with the premium of January futures over December hitting its lowest since last November. Notably, the premium of futures for 2025 over 2024 has reached a new high, indicating expectations of rising prices due to increased demand from new LNG export facilities.

Technical Analysis

Daily Natural Gas

Regarding the moving averages, the current price is above the 200-day moving average of 2.610. This positioning above the 200-day average suggests a longer-term uptrend in the market. However, the current price is below the 50-day moving average of 3.055. Being below the 50-day average indicates a short-term bearish sentiment or a potential consolidation phase in the nearer term.

Considering the minor support and resistance levels at 2.838 and 3.002 respectively, the current price is just above the minor support, indicating a precarious balance. If it holds above this support, it may stabilize or move upwards; however, breaking below could lead to further declines.

Given these observations, the overall market sentiment appears mixed. The position above the 200-day moving average suggests underlying strength, but the short-term bearish indication from being below the 50-day moving average and close to the minor support level adds a cautionary note. The market might be in a consolidation phase, with potential for either direction depending on how it interacts with these key levels.

About the Author

James Hyerczykauthor

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.