Mild Weather and Storage Levels Dampen the Natural Gas Demand and Prices in the U.S

Houston (Texas): Last week, U.S. natural gas prices retreated, with expectations of having lower prices in the future, even after robust liquefied natural gas exports. Due to mild weather forecasts, it is expected that demand will be lower at the end of December, thus attenuating the selling pressure. The significant drop of 8.28% was observed for the week.

Depending on the current conditions and regulated impacts on natural gas storage withdrawals in the coming weeks, accredited to the blend of mild weather and record output. It has been reported that storage levels are higher this year, 3719 Bcf, with a net decrease of 117 Bcf from last week but still above the average of 5 years.

The delay in liquefied natural gas (LNG) production from ExxonMobil's export plant has prompted analysts to check on the U.S. demand forecasts, which is downward for the year 2024. According to New York Mercantile Exchange January delivery futures, indicate an oversold market, with the Relative Strength Index (RSI) abiding below 30. The market’s bearish view strengthened by record production levels and considerable storage capacity, suggested that peak prices might have reached their peak by the month of November.

High inventory level is an important factor in shaping the market trends in the cold months. The country boasts its storage level since 2020, as soon as it is about to enter the winter heating season. Last year’s milder winter and low heating demand have contributed to this surplus storage, thus putting downward pressure on U.S. natural gas prices.

U.S. pipeline exports have seen a decline, averaging 3.9 Bcf so far in December. However, it is expected that exports might increase once New Fortress Energy's plant in Altamira starts operating. Additionally, it is seen that average gas flows to major U.S. liquefied natural gas (LNG) export plants have increased, approximately 14.5 Bcf in December.

The demand for natural gas is anticipated to rise over the next two weeks. However, the future of natural gas prices seems to hinge on whether late December brings colder trends. With current weather patterns and high storage levels, the market appears to be leaning towards a continued bearish outlook for the next half of the year.

Henceforth, LNG exports will be providing some support, but the overall view of the market will remain bearish due to the combination of high storage levels and robust productions. However, geopolitical developments and weather patterns will play a significant role in shaping the natural gas market.