Market uncertainty due to weather and inventory data
The decline in futures on Thursday was due to mixed weather conditions and the upcoming EIA report, which adds further uncertainty to the market. Analysts expect inventories to rise, with survey estimates ranging from +25 to +32 Bcf, but the majority expect a +26 Bcf increase.
According to NatGasWeather, the weather has been warmer than usual recently in the western and southern US, while the Plains, Midwest and East have experienced cooler conditions. The forecast could turn bearish, possibly around +34-35 Bcf, due to a significant decline in cooling degree days (CDDs) and stronger wind and solar power generation. The expected report has traders on tenterhooks and could impact prices in the near future.
Wednesday’s summary: Futures decline due to changing fundamentals
On Wednesday, September natural gas futures on Nymex reversed their initial gains to close lower as market sentiment changed. Persistent heat in certain regions was overshadowed by expectations of cooler weather in the fall off-season, leading to a decline in spot prices, reflecting the market’s focus on the weakening demand outlook at the end of summer.
Weather forecast: Moderate to high demand expected
Looking ahead, the forecast continues to predict heat across much of the western, central and southern U.S., with temperatures ranging from 30 to 38 degrees Celsius, suggesting strong demand in those areas. In contrast, lower demand is expected in the Great Lakes, Ohio Valley, Northeast and Mid-Atlantic through Friday, with highs ranging from 15 to 25 degrees Celsius. However, hotter temperatures are expected in the southern U.S. this weekend, potentially pushing national demand up from moderate to high or very high.
Market forecast: Bearish outlook with risks of further decline
Given the current resistance levels and the upcoming EIA storage report, the natural gas market appears vulnerable to further declines. If storage expansion exceeds expectations, coupled with weaker seasonal demand and strong renewable energy generation, prices could break the $2.091 support and test the major support at $1.907-$1.882. Traders should prepare for a potentially bearish market in the near term.
