Natural Gas Prices Forecast: U.S. Futures Hit 7-Week High Amid Output Dips

Highlights

• U.S. Natural Gas at a Seven-Week High: Futures rise as production drops.
• Unexpected Storage Build: Despite rising demand, the storage build was more than anticipated.
• LSEG Data Insights: Average gas output for September showed a decline from August’s peak.

US Natural Gas Futures Surge Amid Declining Output

U.S. natural gas futures are nudging a seven-week peak on Friday, responding to a dip in production and heightened demand forecasts this week, against the backdrop of the October contract’s expiration.

While forecasts call for a calmer climate and diminished demand next week, there was a slightly larger than anticipated storage build last week as reported by the Energy Information Administration on Thursday. As the front-month, the New York Mercantile Exchange’s November delivery of gas futures advanced 1.6%, touched its highest level since August. Contributing to the market dynamics, LSEG reported a drop in average gas output for September.

A Glimpse at Technical Resistances

The futures’ recent climb represents a five-day consecutive increase, a scene not witnessed since early August 2023. Notably, they’ve surpassed the 200-day moving average, a crucial technical resistance, for the first time since November 2022.

Supply-Demand Equilibrium

Delving into supply intricacies, there’s been a slight decline from August’s record gas output. Meteorological projections hint at a warmer climate in the upcoming weeks, transitioning to more typical temperatures mid-October. These climatic nuances might nudge power generators to curb gas usage for air conditioning.

European Gas Dynamics

Switching continents, European gas prices, particularly in the Dutch and British spheres, saw a downturn with the resumption of Norwegian pipeline supplies post-maintenance. This bearish tilt, backed by analysts, might continue given Norway’s enhanced supply projections for the approaching days.

Short-Term Outlook

Given the evolving landscape of supply-demand mechanics, intensified by climatic patterns and technical benchmarks, a bearish short-term sentiment envelops the U.S. market, warranting cautious optimism.

The two primary reasons suggesting a bearish outlook are increased storage despite rising demand and a European price drop with resumed supply.

Even with a decline in output and the expiration of the lower-priced October contract indicating potentially higher demand, there was a larger-than-expected storage build in the U.S. This indicates that supply is currently outpacing demand, which can put downward pressure on prices.

In the European context, Norwegian pipeline supplies resuming post-maintenance led to a drop in gas prices. The availability of more supply in the market without a corresponding increase in demand often leads to lower prices, suggesting bearish momentum.

Natural Gas Technical Analysis

Natural Gas’s current daily price at 2.935 is positioned above both its 50-Day and 200-Day moving averages, which stand at 2.673 and 2.777 respectively.

This placement suggests the commodity has recently witnessed a bullish momentum, further substantiated by the 14-Day RSI reading of 62.04, indicating slightly heightened momentum.

While the price currently hovers above the main support of 2.699 and the trend line support of 2.629, it remains below the minor resistance level of 3.002. The absence of a clear trend line resistance and the present positioning of price relative to moving averages point to a cautiously bullish short-term sentiment for Natural Gas.

Even if we discount the price gap fueled by the rollover from the October to November futures contract, the market is looking bullish and this strength we likely be confirmed by a breakout over the nearby futures contract top at 3.018.