Overview
Natural gas prices climbed higher on Tuesday, reaching their highest level since May 22, indicating bullish sentiment among speculators who are eyeing a potential rally toward the May 19 peak near $2.80.
Bullish Momentum and Increased Demand
The price action reflects continued support from weekend weather forecasts that favor the bulls. Despite limited trading on Monday due to the holiday, prices surged by 4% on Friday, hitting a three-month high.
A decrease in gas output and expectations of increased demand, particularly in Texas where a heatwave was anticipated, drove this upward momentum. As residents and businesses sought relief from the summer heat, record-breaking power usage was projected, highlighting Texas’ heavy reliance on gas for power generation. Power utilities in Texas and the Gulf Coast are actively working to restore electricity to over 664,000 customers affected by severe storms in the region.
Gas Output in US Declines, Canadian Exports Expected to Rise
According to data provider Refinitiv, gas output in the U.S. Lower 48 states declined to 101.9 billion cubic feet per day (bcfd) in June, down from May’s record high of 102.5 bcfd. As wildfires subside, gas exports from Canada are expected to rise to 8.3 bcfd. Canadian gas exports averaged 7.8 bcfd in June, 7.4 bcfd in May, and 8.3 bcfd in 2023. Refinitiv also projects increasing gas demand, including exports, from 93.2 bcfd to 96.0 bcfd next week and 101.8 bcfd in two weeks. Gas flows to major U.S. LNG export plants decreased in June due to maintenance, averaging 11.6 bcfd compared to 13.0 bcfd in May.
End-of-Month Heat Predicted
Looking ahead, weather forecasts from Natgasweather indicate an active pattern from June 20-22, with weather systems bringing showers, thunderstorms, and moderate demand with comfortable temperatures ranging from the 60s to 80s across most regions, except for the Southwest, Texas, the South, and Florida, where a hot ridge will result in temperatures in the 90s to 100s and regionally strong demand. Other meteorologists predict near-normal weather from June 16-22, followed by hotter-than-normal conditions from June 23 to July 1.
Short-Term Outlook: Conditions Favorable for Rally
In summary, a combination of decreased gas output, increased demand, and favorable weather conditions drives an upward trend in natural gas prices. The market exhibits bullish sentiment with the potential for further gains, particularly aiming to reach the May 19 peak.
Technical Analysis
The current 4-hour price for Natural Gas stands at 2.686. This indicates a slight increase compared to the previous 4-hour close of 2.671. This suggests a modest bullish sentiment in the short term.
In terms of moving averages, the 200-4H moving average is at 2.363, while the 50-4H moving average is at 2.419. The current price is above both moving averages, indicating a bullish trend.
The 14-4H Relative Strength Index (RSI) is at 77.55, which indicates a highly overbought condition. This reading suggests that Natural Gas is currently experiencing strong buying momentum.
Regarding support and resistance areas, the minor support area is identified at 2.586. The minor resistance area is at 2.681, which aligns closely with the current price, suggesting a potential upside breakout is taking place. The major resistance area and potential upside target is between 2.717 and 2.778.
Based on the provided information and analysis, the current market sentiment for Natural Gas can be classified as cautiously bullish. However, please note that market conditions are subject to change, and it is advisable to monitor any relevant developments closely.