Natural Gas Prices Forecast: US Rebounds, Europe Tumbles Amid Divergence

Highlights

• U.S. natural gas market shows signs of recovery amid mild weather forecasts.
• European market faces volatility due to geopolitical tensions and upcoming winter.
• Supply and demand factors shape divergent trends in U.S. and European markets.

Demand and Weather Patterns in the US

US natural gas futures clawed back some losses on Tuesday, rising to $3.129 after a four-day sell-off. The rebound likely reflects traders booking profits, as weather forecasts still don’t indicate a surge in demand.

While a cool system is expected in the Great Lakes and Northeast next weekend, the overall weather pattern for much of the U.S. remains warm, limiting natural gas demand. Mild weather forecasts through late October further cement a bearish outlook.

US Supply Landscape

On the supply side, natural gas output in key shale basins is expected to drop by 0.5 billion cubic feet per day (bcfd) to 98.8 bcfd in November, marking a fourth consecutive month of declines. This decrease in production comes despite average gas output in the Lower 48 states rising to 103.4 bcfd this October.

Additionally, pipeline exports to Mexico are currently at 7.0 bcfd, slightly down from September’s record of 7.2 bcfd, although analysts expect an uptick in the coming months.

European Gas Markets

Across the Atlantic, European natural gas futures tumbled 2.8% due to easing concerns about supply disruptions from the Middle East. Despite geopolitical tensions causing Israel to halt output from the Tamar gas field, the immediate impact on LNG supplies has been negligible. However, concerns remain that a colder winter could still drive prices higher.

Supply Factors in Europe

European gas prices are also affected by high inventories and robust LNG flows. Prices at the Netherlands’ Title Transfer Facility (TTF) benchmark have dropped about 10% to $15 per mmBtu, alleviated by these supply factors. Furthermore, gas flows to major U.S. LNG export plants have increased to 13.4 bcfd this October, with the reactivation of Berkshire Hathaway Energy’s Cove Point export plant.

Short-Term Forecast

In summary, both US and European markets are displaying divergent trends shaped by supply and demand factors. While the US market is dealing with record output and mild weather forecasts, both curtailing demand, Europe faces a different set of challenges altogether.

Short-term, the US market appears bearish given the mild weather forecasts and increasing supply, whereas the European market remains volatile, susceptible to geopolitical tensions and the looming winter season.

Technical Analysis

The current daily price of natural gas at 3.123 is above both the 200-day moving average of 2.627 and the 50-day moving average of 2.806, indicating a bullish trend in the short and medium term.

The asset is trading above its main support at 2.838 and minor support at 3.002, reinforcing the bullish outlook. However, it’s below the minor resistance at 3.434 and main resistance at 3.793, suggesting that upside momentum may face some hurdles.

The current market sentiment appears to lean bullish, albeit with potential resistance levels in sight. However, the market may have to pullback into moving average support before traders make another run at the recent high at $3.471 and the resistance levels.