Category: Forex News, News

Bear Market Continues Amid High Storage Levels

Production and Demand Patterns U.S. natural gas prices are nearing […]

Production and Demand Patterns

U.S. natural gas prices are nearing a three-year low, influenced by a surge in production and subdued demand due to mild winter weather and LNG export plant outages. This price slump is leading analysts to foresee potential reductions in gas drilling activities.

However, such reductions might be balanced by an increase in associated gas production from oil wells, especially as crude prices have risen by approximately 7% this year. The broader expectation is for production cutbacks throughout 2024, considering the current gas price projections.

At 12:18 GMT, Natural Gas is trading $1.844, down $0.073 or -3.81%.

Impact of LNG Exports and Policy Decisions

The downturn in gas prices coincides with industry concerns about limited LNG export growth, following President Biden’s halt on new project permits. LNG exports have grown by an average of 34% annually over the past five years, outpacing domestic demand growth. The moratorium is causing disruption and uncertainties, as stated by Toby Rice, CEO of EQT. This uncertainty is likely to hinder the signing of long-term LNG contracts, crucial for financing new export projects and subsequent gas production.

Despite these challenges, the U.S. is expected to significantly increase its LNG capacity from approximately 13.8 bcfd to around 24.5 bcfd by 2028. This projection is based on projects currently under construction. Analysts believe that the anticipated growth in LNG exports is a key driver for the continued high levels of gas production, even amidst a 44% price drop in 2023.

Weather and Storage Factors

Recent warmer weather trends have contributed to abundant gas supplies in storage, with low heating demand. The latest weather models indicate a continuation of milder conditions, which could further pressure gas prices. As of February 2, 2024, working gas in storage was at 2,584 Bcf, significantly above the five-year average.

Short-term Market Forecast

Given the current market conditions, including the oversupply, policy uncertainties, and mild weather, the outlook for natural gas prices remains bearish in the short term. The focus now shifts to producers, particularly in the Marcellus and Haynesville regions, who might be the first to announce production cuts. The market will closely monitor these developments and their impact on future gas prices.

Technical Analysis

Daily Natural Gas

Natural gas prices are currently plunging on Friday, as bearish fundamental and technical factors are combining to drive the prices to a three-year low. Apart from potentially oversold conditions, there seems to be no hope for a rally on the horizon, with many traders suggesting that winter is effectively over. Moreover, the ongoing price action is indicating a liquidation by longs, who appear to be giving up on the return of a significant cold weather spell.

Technically, the nearest resistance point being watched is the downtrending 50-day moving average, which is at $2.055.


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