Natural Gas Tumbles Amid Renewed Domestic Demand Concerns

Natural gas futures are under pressure on Tuesday, but off its intraday low as bearish overnight forecasts weighed on sentiment. Technically, the early sell-off was a continuation of the previous session’s wicked closing price reversal top.

At 15:06 GMT, April natural gas futures are trading $4.680, down $0.153 or -3.17%. The United States Natural Gas Fund ETF (UNG) is trading $16.48, down $0.47 or -2.77%.

Bearish Weather Outlook Retakes Control

On Tuesday, Natural Gas Intelligence (NGI) cited two weather forecasts from EBW Analytics Group and NatGasWeather for the renewed selling pressure.

During the two weeks leading up to Monday’s session, natural gas futures had been “trading in lockstep with crude oil,” EBW Analytics Group senior analyst Eli Rubin observed in a note to clients early Tuesday.

Milder forecast trends, showing projected demand losses after mid-March “shocked the market into a fundamental reawakening,” Rubin said. Prior to Monday’s sell-off, “capital inflows into the commodity sector since Russia’s invasion of Ukraine had overwhelmed to raise Nymex gas above $5.00/MMBtu.

“…A continued capital reallocation towards energy – or reversal in weather – may still buoy natural gas,” the analyst added. “With fundamentals reasserting a dominant role and notable seasonal loosening ahead, however, further downside may be the most likely scenario.”

NGI also wrote that NatGasWeather similarly attributed Monday’s declining natural gas prices in part to “an increasingly bearish setup” in the weather outlook for March 15-22.

Both the American and European weather models extended warmer trends overnight, according to the firm.

“While the coming six days are rather bullish with stronger than normal national demand, the March 15-22 U.S. pattern has trended increasingly bearish as above-normal temperatures over the southern U.S. expand to cover most of the northern U.S.,” NatGasWeather said. This would drop national demand to “the lightest levels in months,” and the data as of early Tuesday suggested the milder pattern could stick around “until March 23-25 at the earliest.”

Still, even as bears appeared to have “wrestled momentum away from bulls,” Russia’s invasion of Ukraine remains a source of uncertainty, destabilizing markets, the firm said.

This “could again be a reason if U.S. gas prices rally,” NatGasWeather said. “But so far today, bearish U.S. weather trends are winning out.”

Short-Term Outlook

Monday’s and Tuesday’s selling pressure indicates that natural gas investors are looking past surging European gas and global crude oil prices, and refocusing on the traditional fundamentals for this time of year. The short-term outlook is likely to be influenced the most by waning domestic demand as the U.S. markets approach the shoulder season.

The war in Ukraine could once again drive prices higher if it triggers renewed concerns over global supply shortages, but after yesterday’s sharp reversal down, this outcome has become a “wildcard”.

Traders are now betting on nearly a sure thing – increased production and lower U.S. demand.