Natural Gas Forecast: US and European Prices Eye Weather and LNG Shipments

[MongiIG]

NATURAL GAS, US, EUROPE, LNG, NORD STREAM 2, TEMPERATURE MODELS – TALKING POINTS

• US Natural gas prices eye EIA inventory report as cold weather looms
• European prices see relief as temps rise, with LNG imports inbound
• Technicals look bearish after prices dropped below the 200-day SMA

US NATURAL GAS FORECAST

US natural gas prices are slightly higher through Asia-Pacific trading after prices dropped over 5% overnight. Currently, the US benchmark is on track to record a monthly loss of around 15%, which would make December the third month of consecutive losses. A warmer-than-expected start to the winter across North America has been the main headwind for prices in recent months.

However, a bout of expected cold temps across the Northern Plains may underpin prices. The National Weather Service’s 8-14 day temperature outlook (NOAA) shows mercury readings will likely dip below the historical averages. Alaska and Southern California are also showing an increased chance for cold weather in early January. Natural gas is heavily relied upon as a heating fuel, making prices highly susceptible to weather trends.

Tonight will see an inventory report cross the wires for the United States for the week ending December 24. The Energy Information Administration (EIA) is expected to report a draw of 128 billion cubic feet (bcf), according to a Bloomberg survey of economists. A larger-than-expected draw may help support prices, especially if the expected cold snap plays out. EIA data shows natural gas stocks are 34 bcf below the five-year average. The unseasonably warm weather so far this winter has helped inventory levels normalize over the past few weeks.

Source: ir.eia.gov

US NATURAL GAS TECHNICAL FORECAST

Prices fell below the key 200-day Simple Moving Average (SMA) overnight, putting bulls on the defense. Support can be seen at the 78.6% Fibonacci retracement level from the May/October move. The MACD oscillator is trending higher toward its centerline, along with RSI, but the path higher looks to be a hard-fought one.

US NATURAL GAS DAILY CHART

EUROPEAN NATURAL GAS FORECAST

The European energy crunch is seeing some relief this week, with the European benchmark at the Title Transfer Facility (TTF) down nearly 30% since December 27. Some warmer weather in Western Europe is helping to relieve prices from sky-high levels. An increase in wind speeds is also helping to drive power production from wind farms, shifting some demand from natural gas plants.

Still, prices for 2021 remain highly elevated, and upward pressure is likely to extend into the New Year. The Nord Stream 2 pipeline continues to face regulatory and political hurdles, and it looks like the pipeline won’t go into operation until the second half of 2022. However, a deluge of liquified natural gas (LNG) cargo is making its way into Europe, primarily from the United States.

According to a Bloomberg report, inbound LNG shipments to Europe are up around 33% from last week, and several other cargo ships have more recently diverted routes away from Asia, with those ships likely now heading to Europe. Those diversions follow TTF prices hitting record highs last week. That could lead to larger-than-expected inventory draws across Asia in the coming weeks and months.

EUROPE NATURAL GAS DAILY CHART

 

Written by Thomas Westwater, Analyst for DailyFX.com. 30th December 2021.