Weather patterns today cast uncertainty on NatGas demand, as Florida braces for power and gas disruptions.
US natural gas futures experienced a dramatic fluctuation this week. As Tropical Storm Idalia progressed towards the Gulf of Mexico, initial speculative buying sent prices soaring. However, when it became evident that the storm wouldn’t significantly impact natural gas infrastructure and was more likely to cause power outages in Florida, dampening demand, the market sharply adjusted.
On Monday, futures rose by about 5% due to expectations of heightened demand amid a forecasted heat wave. Surprisingly, these predictions persisted even as the imminent threat of Tropical Storm Idalia became clear. Expected to evolve into a major hurricane, Idalia could disrupt power to over a million establishments, cutting both power and gas demands. For context, Florida’s consumption of gas was approximately 4.4 billion cubic feet daily in 2022, with a significant chunk utilized for power generation.
Despite a waning heatwave, tight supply concerns remain. In Texas, where demand recently surged to nearly record highs, prices at the ERCOT North hub remained elevated, reflecting concerns over supply sufficiency. Gas’s pivotal role in the Texan energy mix – contributing to 49% of the state’s power in 2022 – makes its supply-demand dynamics crucial for power prices in the region.
Futures for September exhibited a bullish trend, rising by 4.6% to reach $2.657 per mmBtu. October futures, soon to be front-month, showed a similar uptick. However, a two-week downward streak in prices has seen speculators reduce their net long positions in gas futures and options.
Given current circumstances, the outlook for natural gas appears mixed. Supply remains slightly constrained, and despite a predicted seasonal cool-down, the US is expected to experience above-average temperatures until mid-September. Demand might dip slightly, but potential disruptions to LNG exports, especially from major plants, could tip the balance. The immediate market sentiment leans more bearish due to possible cooler temperatures and power outages.
The current 4-hour price of 2.657 is slightly below the previous 4-hour close of 2.673, indicating a minor retracement. It is, however, above both the 200-4H moving average (2.643) and the 50-4H moving average (2.573), suggesting an overall bullish trend. The 14-4H RSI stands at 58.04, pointing to a stronger momentum but not yet in the overbought territory.
With the current price nestled between the main support area of 2.542 to 2.487 and just below the main resistance at 2.674, there is potential for an upward move. Collectively, the market sentiment appears cautiously bullish for Natural Gas. However, sentiment could shift quickly if sellers drive the market to the bearish side of the moving averages.
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.