Natural gas price outlook as bullish factors turn bearish

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Dec 7, 2021
  • Natural gas price is down by over 25% since dropping past the crucial $5.00 a week ago.
  • Forecasts of warm weather in both Europe and the US have triggered the plunge.
  • In the US, inventories are gradually increasing.

Natural gas price surged to its highest level since February 2014 in early October. Notably, tight supplies and concerns over a hasher-than-expected winter in the Northern Hemisphere were the key drivers of the rallying. Interestingly, weather and the supply outlook are still the drivers of the trend reversal.

The commodity has been on a decline in recent weeks; with the plunge intensifying over the past week. Since breaking out of the crucial support zone of $5.00 per million British thermal units (mBtu) a week ago, it has dropped by over 25%. It is also down by over 40% from October’s high.

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At the time of writing, natural gas price was up by 2.24% at $3.75. On Monday, it hit a low of $3.62. The drop pushed it into the oversold territory with an RSI of 23 before rebounding.

natural gas price
natural gas price

Weather pattern

The once weather-driven rally has shifted into a weather-driven downtrend. In Europe, forecasts of milder weather in the immediate term pushed the continent’s benchmark price at the Dutch Title Transfer Facility (TTF) down by close to 5% on Monday. Besides, the day-ahead wholesale prices in the UK fell by 2.6%.

In the US, The Weather Channel has noted that December 2021 is on track to being the third warmest on record after 1950 and 2015. This week, temperatures in New York and Houston will likely reach 61 and 81 degrees Fahrenheit respectively. A less harsh winter could result in lower natural gas price as heating demand falls. As such, investors will keenly watch the weather pattern in the coming weeks.

Natural gas supplies

The supply outlook has further exerted pressure on natural gas price. Granted, inventories in Asia and Europe are still strained. However, the stabilizing inflow of output from Russia has eased concerns.

According to Gascade – a German network operator – the flow of natural gas from Russia through the Yamal-Europe pipeline to Germany and Poland was steady over the weekend. Nonetheless, Axpo Solutions has noted that the Russian supplies are still “a far cry from what would have been needed to prevent storages from dropping further”.   

In the US, there has been a steady build of stockpiles. According to the weekly EIA inventory report, the amount of working gas in the country’s underground storage was 3,564 billion cubic feet (Bcf) for the week ending on 26th November. The figure represents a decline of 59 Bcf from the previous week. However, it is still within the 5-year historical range.

Besides, the recorded amount was 86 Bcf lower than the 5-year average and 375 Bcf below the figure recorded at a similar period in 2020. Last week’s inventory report, which is scheduled for release on Thursday, will further impact natural gas price.   

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