Natural Gas Prices Forecast: Will Cooler Weather Boost Demand This Week?

Key Points

• Higher demand anticipated due to cooler weather predictions.
• LNG export recovery and storage trends impact market trends.
• Drilling activity shows cautious industry stance despite upswing.

Last Week’s Price Performance and Current Outlook

U.S. natural gas futures experienced a notable rise last week, closing at $2.712, up by $0.193 or +7.66%. This surge to a one-week high was primarily driven by forecasts of higher demand due to slightly cooler weather predictions and the gradual recovery of output following early January’s Arctic freeze. As traders anticipate changes in weather conditions, this upswing reflects the market’s sensitivity to both environmental factors and supply trends.

Demand Fluctuations Amid Weather Changes

Demand forecasts show significant variability in response to shifting weather patterns. LSEG projects that natural gas demand in the Lower 48 states will drop from the current level of 144.6 billion cubic feet per day (bcfd) to 124.9 bcfd next week. However, a rise to 127.8 bcfd is expected within two weeks as cooler weather sets in. This fluctuating demand aligns closely with meteorologists’ predictions of warmer-than-normal temperatures lasting until at least February 10, followed by cooler conditions in the week starting February 4.

Supply and Storage Trends

On the supply side, January’s production in the Lower 48 states averaged 103.2 bcfd, a decrease from December’s high of 108.0 bcfd. Working gas in storage was recorded at 2,856 billion cubic feet (Bcf) as of January 19, 2024, marking a net decrease of 326 Bcf from the previous week. Despite this drawdown, storage levels are still 110 Bcf higher than last year and 142 Bcf above the five-year average, indicating a resilient supply buffer.

Impact of Weather on LNG Exports

The LNG export sector is rebounding slowly from the recent extreme cold weather. Average gas flows to U.S. LNG export plants were at 13.8 bcfd in January, lower than December’s 14.7 bcfd. However, a recovery is underway, with daily LNG feedgas expected to rise to approximately 14.0 bcfd, bouncing back from the one-year low of 9.2 bcfd experienced during the freeze.

Drilling Activity and Future Output

Recent data from Baker Hughes shows an increase in U.S. drilling activity, with the oil and natural gas rig count rising by one to 621 in the week to January 26, 2024. Although this is a positive sign, the total count is still 19% below the same period last year, highlighting the industry’s cautious stance in scaling up production.

Weekly Forecast

Looking ahead, the weekly forecast for U.S. natural gas is bullish, underpinned by the expected rise in demand due to cooler weather and the ongoing recovery of LNG exports. However, the market remains sensitive to fluctuations in weather forecasts and production levels. Traders will closely monitor these factors, as they will be key in determining the direction of natural gas prices in the upcoming weeks.