Natural Gas Prices Climb as Weather Forecasts Predict Warmer-Than-Usual Conditions

Natural gas prices saw a 0.97% increase, closing at 218.9 yesterday, driven by the anticipation of hotter-than-normal weather persisting until the end of August, particularly in Texas. This weather outlook has contributed to the positive sentiment in the natural gas market. US utilities added 35 billion cubic feet (bcf) of natural gas to storage during the week ending on August 11, 2023. This surpassed market expectations, which had projected a 34 billion cubic feet increase in storage.

The accumulation of natural gas last week elevated stockpiles to 3.065 trillion cubic feet (tcf). This figure stands 549 bcf higher compared to the same time last year and is notably 299 bcf above the five-year average of 2.766 tcf. The current total working gas of 3.065 tcf falls within the historical range of the past five years, indicating stability in this regard. However, it's noteworthy that these stockpile levels have increased considerably.

Data provider Refinitiv presented a forecast for U.S. gas demand, encompassing exports, to escalate from 103.1 billion cubic feet per day (bcfd) this week to 104.4 bcfd in the coming week. Although these predictions indicate an increase, they are slightly lower than what was projected on Monday. Refinitiv's analysis also indicated that average gas output in the Lower 48 states remained relatively consistent, with 101.8 bcfd observed in both August and July. Notably close to a monthly record of 102.2 bcfd achieved in May.

Meteorologists concur with this trend, forecasting that temperatures across the Lower 48 states will continue to remain above average until at least August 29. This extended period of elevated temperatures has played a role in driving up the demand for natural gas, particularly for cooling purposes.

The recent surge in natural gas prices, up by 0.97%, can be attributed to the prevailing anticipation of prolonged hotter-than-normal weather conditions, particularly notable in Texas, until the end of August. This weather outlook has propelled demand for cooling, contributing to the uptrend in natural gas prices. Additionally, the market has seen an increase in the accumulation of natural gas in storage, which has pushed stockpile levels to 3.065 trillion cubic feet, well above the five-year average. Refinitiv's forecasts indicate a rise in gas demand, albeit slightly lower than previously projected. This demand increase aligns with the meteorological predictions of above-average temperatures, which are expected to persist until late August. From a technical perspective, the market is undergoing short covering, while prices have risen, prompting the consideration of support and resistance levels for potential future price movements.