Natural Gas Prices Forecast: Traders Brace for Warmer Weather, EIA Report

Key Points

• Warmer Weather Ahead, Reducing Gas Demand
• Decline in LNG Exports Impacts Market
• Cold Weather Disrupts Gas Output, Warmer Forecast Expected

Bearish Outlook as Warmer Weather Approaches, EIA Report in Focus

U.S. natural gas futures are facing a bearish outlook as market trends shift in response to changing weather patterns, supply factors, and the highly anticipated release of the latest U.S. Energy Information (EIA) Weekly Storage Report.

Bearish Factors

Warmer Weather Ahead: Weather forecasts are pointing to a significant warming trend arriving in late January. This shift is expected to reduce heating demand for natural gas, putting downward pressure on prices.

LNG Export Decline: Natural gas flows to U.S. liquefied natural gas (LNG) export plants recently hit a one-year low. Energy companies are redirecting gas supplies to the domestic market due to higher power gas prices caused by extreme cold, leading to decreased exports.

Impact of Extreme Cold: The recent extreme cold weather both froze gas wells, reducing supplies, and increased daily gas demand to a record high. This dual impact added complexity to the market.

EIA Weekly Storage Report

The market is eagerly awaiting the release of the latest EIA Weekly Storage Report, due to be released at 15:30 GMT, covering the period up to January 12. Survey averages suggest a draw of -162-164 Bcf, larger than the 5-year average of -126 Bcf. The outcome of this report will likely have a significant impact on market sentiment.

Recent Market Performance

On Thursday, U.S. natural gas futures are hovering near a one-week low, hit the previous session. Anticipation of warmer late-January weather, which is expected to reduce demand, is contributing to the decline. Additionally, lower gas flows to LNG export plants are weighing on market sentiment.

Supply and Demand Dynamics

LSEG, a financial company, reported a drop in average gas output in the Lower 48 states compared to December’s monthly record. Although recent cold weather caused a 12-month low in daily U.S. gas output, it was less severe than past weather-related disruptions.

As meteorologists forecast warmer temperatures from late January into early February, LSEG anticipates a decline in U.S. gas demand in the Lower 48. This decline results from reduced heating needs and decreased exports, though next week’s forecast is more optimistic.

Short-Term Forecast: Bearish

In the short term, U.S. natural gas futures are expected to remain bearish. The impending warmer weather, combined with reduced LNG exports and increased supply, is creating downward pressure on prices. Traders should closely monitor market developments as conditions may change rapidly in response to these factors and the upcoming EIA report.

Technical Analysis

U.S. natural gas is edging lower on Thursday, find some support just above the 50-day moving average at 2.745. Resistance at 2.874 could act like a pivot today.

Essentially, the bears are hoping the market crosses to the weakside of the 50-day and begins another acceleration to the downside. However, aggressive bulls could thwart those expectations with a strong rally over the pivot.

If the buying is strong enough to overcome the pivot then look for a potential near-term surge into the resistance cluster at 3.056 to 3.075, the latter is the 200-day moving average. A move of this caliber should bring in another round of selling pressure.

The tone in the market is bearish because of the fundamentals, but technically, traders are going to be offered a chance to sell weakness through the 50-day or wait for a retacement into the 200-day.