Natural gas price has been trading in a narrow range near 2.650 level for the past few days, despite the attempts of the stochastic indicator to provide some positive momentum. The price needs to rally above the MA55 to activate the bullish attack and start targeting the initial stations at 2.950 and 3.500 levels, according to the analysis by Economies.com.
The demand for natural gas is expected to rise in the coming months, as the winter season approaches and the need for heating increases. Moreover, natural gas is also used for power generation and industrial purposes, which could boost its consumption as the global economy recovers from the pandemic.
According to the U.S. Energy Information Administration (EIA), natural gas consumption in the U.S. is projected to increase by 1.4% in 2023, compared with 2022, mainly driven by higher demand in the residential and commercial sectors. The EIA also expects natural gas exports to grow by 11.6% in 2023, as more liquefied natural gas (LNG) facilities come online and pipeline capacity expands.
Supply of natural gas is outpacing demand in 2023
However, the supply of natural gas has been outpacing demand so far in 2023, contributing to lower natural gas prices. The U.S. dry natural gas production has remained at record highs in 2023, averaging over 101.0 billion cubic feet per day (Bcf/d) each month. In the first quarter of 2023, dry natural gas production increased 7%, or 6.9 Bcf/d, from the same period in 2022[3][3].
The EIA forecasts that U.S. dry natural gas production will average 101.6 Bcf/d in 2023, up 4.8% from 2022. The increase in production is mainly attributed to the growth in associated gas output from oil-directed rigs in the Permian Basin and other regions.
The high level of production has resulted in a surplus of natural gas inventories, which could limit the upside potential for natural gas prices. As of August 13, 2023, working natural gas stocks totaled 2,923 Bcf, which is 16% more than the year-ago level and 7% more than the five-year (2018–22) average for this week.
Natural gas price faces technical and fundamental challenges
The natural gas price faces both technical and fundamental challenges in its attempt to break out of its current range and resume its bullish trend. On the technical side, the price needs to overcome the resistance of the MA55 and the psychological level of 2.700, which have been capping its upside movements recently.
On the fundamental side, the price needs to find support from stronger demand and lower supply factors, which could reduce the pressure from the oversupply situation and lift the market sentiment. Some of the factors that could influence the demand and supply dynamics include:
- The weather conditions in the U.S. and other major consuming regions, which could affect the heating and cooling demand for natural gas.
- The pace of economic recovery and industrial activity in the U.S. and other major producing regions, which could affect the power generation and industrial demand for natural gas.
- The development of LNG export projects and pipeline infrastructure in the U.S. and other major exporting regions, which could affect the global supply and demand balance for natural gas.
- The geopolitical tensions and conflicts in some of the key natural gas producing and transit countries, such as Russia, Iran, Iraq, Qatar, Turkey, and Ukraine, which could disrupt the supply and transportation of natural gas.
