Natural gas price outlook following a shift in the weather forecast

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 28, 2021
  • Natural gas price has edged higher as a reaction to the adjusted weather forecast.
  • US futures are still experiencing resistance at a crucial level.
  • Some speculators still expect a decline in price.

Natural gas price has edged higher as a reaction to the weather forecasts of freezing temperatures in the current week. Most speculators are still of the opinion that the US futures will record a significant decline. Recently, the price dropped to $3.50 amid forecasts of a warmer-than-expected winter in the US.

natural gas price
natural gas price

Weather forecast

Natural gas price has extended the week’s gains as the market reacts to the US weather forecast. According to the Weather Prediction Center, the northern and western parts of the United States are expected to experience strong winds, heavy snow, and freezing temperatures in the new week. The weather is expected to increase heating demand in the region. Refinitiv projects the US natural gas demand to average at 126.7 billion cubic feet daily. The figure is an increase from 110 billion cubic feet.

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As a reaction to the weather forecast, US natural gas futures rose to $4.06 per million British thermal units (mBtu). The figure represented an 8.8% rise from $3.73 at the end of last week. It is also the largest dollar gain recorded since 26th November.

Natural gas price outlook

At the time of writing, natural gas price was at $3.90. Since the beginning of December, it has been trading within a range of between $3.60 and $4.00. However, in the past week, it dropped to $3.50 before bouncing back to the aforementioned range.

Notably, most investors have been betting that the futures will decline to and past $3.50. As such, last week’s drop appeared to be bringing the bearish expectations into reality. The decline was a reaction to the weekly EIA inventory data that indicated a reduction in stockpiles by 55 billion cubic feet. In comparison, analysts had estimated a decline of 57 billion.  

According to recent data released by Commodity Futures Trading Commission, an increasing number of hedge funds and speculators have continued to bet that natural gas price will decline. In fact, the margin between such bets and those forecasting a rise in price has widened significantly.

During this time of the year, natural gas price usually makes significant movements as the market reacts to winter weather forecasts and inventory data. Investors are now keen on the availability of heating fuel during the cold season. Notably, there was heightened demand for the commodity during the summer period that was one of the hottest ever recorded in the Northern Hemisphere.

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