Natural Gas Prices Increased Due To Decline In Daily Output

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Natural Gas Prices Increased Due To Decline In Daily Output
Credit: © Reuters.

Natural gas prices surged by 4.99%, settling at 223.1, driven by a decrease in daily output and revised forecasts indicating colder weather in mid-January. Despite initial predictions of milder weather this week and the next, along with a slight decline in gas flow to U.S. liquefied natural gas export facilities, the market experienced an upswing. The recent increase in natural gas prices occurred even as the weather forecast suggested lower heating demand. Mild weather in the short term allows utilities to draw less gas from storage due to reduced heating requirements. 

The lower 48 U.S. states witnessed a decline in average gas output to 107.5 billion cubic feet per day (bcfd) in January from the monthly record of 108.5 bcfd in December. Meteorologists expect near-normal to warmer conditions until January 12, followed by colder-than-normal weather from January 13 to 18. Anticipating this colder spell, financial firm LSEG revised its forecast, predicting an increase in U.S. gas demand in the Lower 48, including exports, from 132.7 bcfd this week to 133.7 bcfd next week. Despite this adjustment, the forecasts remained lower than earlier projections. U.S. pipeline exports to Mexico declined to an average of 4.2 bcfd in January, down from 4.6 bcfd in December and a record 7.0 bcfd in August. 

From a technical standpoint, the market is undergoing short covering, with a drop in open interest by -19.25% to settle at 23622. Natural gas is finding support at 214.6, and a breach of this level could lead to a test of 206.1. On the upside, resistance is likely at 229.2, and a move above could pave the way for a prices testing 235.3.

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