Natural Gas Forecasts – Key Points

  • Natural gas prices expected to rise nearly 10% so far in June
  • Record temperatures in the western United States are driving energy demand.
  • The recent rally has significantly improved the technical outlook

Natural gas prices rose nearly 10% in June as record heatwaves burned the western United States. Unusually high temperatures extend from California to the Great Plains, covering thousands of miles across urban and rural areas. New records were set in more than a dozen locations last week, according to meteorologist Alex Lamers at the National Oceanic and Atmospheric Administration’s (NOAA) Weather Prediction Center.

Extreme weather causes people to turn on air conditioners, which puts a high demand on the power grid. In fact, soaring temperatures could put massive demand on the grid, causing California’s hydroelectric power plant to shut down for the first time in 50 years. State officials estimate that there are two to three months left before the generators run at current rates, underscoring the strain from the heatwave.

With triple-digit temperatures, grid operators and elected officials are calling on residents to conserve power, and California has declared a state of emergency. Moreover, the western United States is facing severe drought in areas that emphasize hydropower. That said, other energy sources, including natural gas, are absorbing huge amounts of energy demand.

According to the Korea Meteorological Administration, the heat is expected to continue through this weekend. Meteorologists expect temperatures to rise more than 20 degrees above average by early next week, with the northwest likely to have the highest levels of mercury. Energy demand will likely continue to fuel demand-side pressure on natural gas prices.

NOAA 8-14 Day Outlook

Noah

Source: cpc.ncep.noaa.gov

Natural Gas Technical Analysis

Natural gas appears to have successfully retraced its September 2020 trend line, confirming the recent swing lows as support. The 20-day simple moving average (SMA) also appears to have provided some confluence support. The technical posture of heating gas seems ready to offer the price a chance to hit a 2020 high of 3.396.

However, the recent swing high of 3.369 or the previous 2021 high of 3.316 could act as resistance before testing the area. That said, the recent rally broke through negative divergence on both the RSI and MACD oscillators, negating possible bearish signals. Alternatively, 20-day and 50-day SMAs can provide bearish support if the price declines.

natural gas daily chart

NAT gas chart.

chart made with TradingView

natural gas trading resources

— Written by Thomas Westwater, analyst at DailyFX.com.

To contact Thomas, use the comments section below, or @FxWestwateron twitter

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