Natural Gas Forecast: Prices Recover as Traders Capitalize on Price Dips

Highlights

• Natural gas prices recover despite negative weather predictions and Canadian exports.
• Buyers take advantage of price dips due to positive reports on drilling rigs.
• Lackluster summer forecast and technical factors suggest possible future declines.

Overview

Natural gas prices are holding steady during the middle of the trading session, recovering from an initial drop in an attempt to significantly reduce prices.

Traders are not overly concerned about negative weather predictions and an increase in Canadian exports. This indicates that buyers are taking advantage of price dips because of positive reports from Baker Hughes about a significant decrease in drilling rigs.

Traders are minimizing the losses in natural gas prices, but a lackluster summer forecast and technical factors still leave room for the possibility of further declines in the future.

At 16:00 GMT, Natural Gas is trading $2.3475, up $0.0395 or +1.71%. The United States Natural Gas Fund ETF (UNG) is at $6.96, up $0.08 or +1.16%.

Bearish Weather Continues

The current weather patterns are unfavorable for natural gas prices, as systems in the southern US are preventing widespread high temperatures. This bearish weather is expected to continue until hotter patterns arrive, which is projected to be around June 6-10.

Although natural gas prices are increasing on Wednesday, it is not being influenced by the weather. During the May 24-30 period, the US will experience active weather systems with showers, thunderstorms, and temperatures ranging from the 60s to 80s, except for hotter conditions in the Southwest deserts and South Texas reaching the 90s. The Great Lakes and Northeast regions will have cooler-than-normal temperatures, with overnight lows dropping into the upper 30s and 40s. This may result in a slight increase in heating demand.

Canadian Gas Exports to U.S. Normalize

Canadian natural gas exports to the United States have returned to normal levels following disruptions caused by wildfires in Alberta and other western provinces. This has led to a significant drop in U.S. gas futures, as Canada supplies around 8% of the gas consumed or exported by the U.S. In the past weeks, gas flows from Canada averaged 7.2 billion cubic feet per day (bcfd), lower than the year’s average of 8.3 bcfd.

However, the amount of gas exported from Canada to the U.S. is expected to remain near a three-week high of 8.1 bcfd. The wildfires had forced Canadian producers to cut exports to a low of 6.4 bcfd. Overall, the return to normal gas flows from Canada has impacted gas prices and market dynamics in the U.S.

Traders Expecting Further Declines

Traders are currently reducing natural gas losses, but the outlook for the summer is unimpressive, combined with technical factors, which suggests the possibility of further declines in the future.

Technical Analysis

Natural gas is trading on the weakside of $2.432 (R1), making it new resistance. Overcoming this level will indicate the return of buyers with $2.638 (R2) the next target.

A sustained move under $2.432 (R1) will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into $2.168 (Pivot), followed by $1.962 (S1)