Natural Gas Prices Forecast: Whipsawed Amid Weather Shifts, Trading Frenzy

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Published: Jan 10, 2024, 14:47 GMT+00:00

Natural gas futures fall amid trading and weather changes; storage 12.2% high; EIA predicts 2024 record production and exports.

Key Points

Futures fluctuate with weather, speculative trading
Natural gas storage levels remain high
Bearish short-term outlook amid market volatility
Watch midday weather updates

Natural Gas Overview

U.S. natural gas futures have seen significant fluctuations this week, characterized by a steep decline after an earlier sharp price increase. This movement is a response to speculative trading, evolving weather forecasts, and changing demand expectations. Pay close attention to the midday forecasts because they could be the source of volatility heading into the close.

Volatility and Speculative Trading

February natural gas futures soared to a peak since November, only to encounter substantial selling pressure. This reversal seems to be a reaction to speculative traders exploiting thin trading conditions, influenced by predictions of increased demand in the near future. However, later weather reports cast doubt on the duration of the cold spell, prompting traders to lock in profits from the recent price rise.

Weather and Demand Changes

According to NatGasWeather, initial weather models, including GFS and EC, predicted a significant cold front across the U.S., leading to a surge in natural gas prices. Yet, later updates suggested a milder cold period and a faster return to warmer temperatures, causing erratic price movements. The current forecast indicates moderate demand until Friday, then intensifying as a cold wave hits the Rockies and Midwest.

Market Response and Storage Levels

Futures responded to these updates with a 12% increase, reaching a seven-week high. Concerns about potential production disruptions due to freeze-offs, as seen in previous incidents in Texas and Appalachia, add to market apprehensions. Despite this increase and the expected severe cold, natural gas storage levels are still about 12.2% higher than usual for this time of year.

Short-term Forecast

In the immediate future, natural gas futures are likely to continue their unstable course. The market appears bearish due to current overbought conditions and the uncertainty of weather patterns and demand. Traders should anticipate ongoing price swings as the market adjusts to these changing factors.

Production and Demand Outlook

Looking further ahead, the U.S. Energy Information Administration predicts record highs in natural gas production, domestic consumption, and LNG exports for 2024. These projections highlight the ongoing influence of the shale revolution and the U.S.’s emergence as a top global LNG exporter. Conversely, a decrease in coal production and a shift toward renewable energy sources indicate a significant transformation in the U.S. energy sector.

Technical Analysis

Daily Natural Gas

The current daily price of natural gas at $3.062, slightly above the pivotal level of $3.056, indicates a balanced market sentiment in the short term. This price, however, is below yesterday’s close of $3.190, suggesting a mild bearish tone as the market retracts from its previous day’s level.

The asset is trading near its 50-day moving average of $2.796, which can be interpreted as a bullish signal in the medium term, indicating that the price has been trending upward over the last few weeks. However, it remains slightly below the 200-day moving average of $3.077, a threshold typically considered in longer-term analyses.

The fact that the price hovers below this level may signal caution among long-term investors. Given the absence of distinct trend line support or resistance, the market lacks a clear directional bias, but the proximity to both the 50-day and 200-day moving averages, along with its position near the daily pivot, suggests a market in consolidation, awaiting further cues.

Overall, market sentiment appears cautiously optimistic in the short term, but with an awareness of potential longer-term challenges.

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.