Luca Facchini: Natural Gas Market Outlook

Natural gas prices have dropped precipitously and will they continue?  Find out as trader and systems developer Luca Facchini analyzes this crucially important market.

 

 

Natural Gas Updates

Natural gas futures fell to a 19-month low on Wednesday as unseasonably mild weather continues to suppress demand. The price of gas for February delivery dropped to $3.055 per million British thermal units. This is the lowest level it has been since June 2021.

The decline can be attributed to the lack of heating demand due to mild winter temperatures and the ongoing repairs at the Freeport LNG plant. This has freed up 2 billion cubic feet of gas per day for the domestic natural gas market.

According to the Energy Information Administration’s weekly survey, natural gas for winter use decreased by 82 billion cubic feet last week. This brings the overall supply to 1.2% above the five-year average for the week. Last Monday, the price was up 10% with a nice rebound that in reality was very short-lived.

Despite the drop in demand, natural gas prices have been limited by the high domestic production and storage levels. This decline was due to forecasts of reduced heating demand over the next two weeks. This outweighed the decrease in output caused by freezing temperatures in some production regions.

 

Predictions

Since the beginning of 2023, US natural gas prices have decreased by more than 30% . These have dropped nearly 70% from their August peak of almost $10, due to the weather conditions delaying the winter heating season. The market could go lower with the next targets in the area of $2.50, or a test of the most recent historical lows at $1.50. It is wise to play the downside and take only short signals, but we could still have a cold February and March adding to the heating demand.

The market is for sure oversold, and we could see some bear rallies in the upcoming weeks. In fact from a seasonal point of view, we have a tendency to be bullish in February.


Luca Facchini is recognized by his professional peers in the USA and overseas,  for challenging common assumptions, developing innovative ideas, systems and methodology for optimizing and trading buy/sell signals in a variety of markets and financial instruments.   More about Luca Facchini

 

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