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Natural Gas Outlook: Warms Conditions Persist in the US and Europe, Gains Ahead?

Natural Gas Outlook: Warms Conditions Persist in the US and Europe, Gains Ahead?

Thomas Westwater, Analyst

Natural Gas Talking Points

  • Natural gas prices remain elevated on solid fundamental drivers
  • Hot conditions in Western US, Southern Europe bode well for demand
  • Technical outlook sees clear path to challenge recent highs

Natural gas prices are up over 4% this week, bolstered by strong demand prospects. A heatwave across Southern Europe is likely translating into elevated liquified natural gas exports (LNG). According to Greece’s weather service, the country saw its highest temperature on record Monday. Meanwhile, drought conditions across the Western United States are pressuring hydropower capacity. That bodes well for alternate energy sources like natural gas.

Prices remain elevated near multi-year peaks, despite being lower from last week’s swing high. August is on track to see a fifth monthly rise after a strong fundamental backdrop kept demand elevated through the summer months. A massive heatwave across the United States in June resulted in an over 20% monthly rally. Hot and arid conditions have moderated somewhat since then, but not enough to sap the rosy demand outlook that has kept bulls in firm control.

The National Weather Service’s 8-14 day temperature outlook sees elevated mercury readings, primarily across the Northeast and Northwest of the United States. That will likely fuel energy demand as Americans turn down their thermostats to stay cool. It is also important to note that there is a below-average probability for precipitation in much of the Western US. With hydropower already strained, dry conditions are working to the benefit of natural gas.

noaa 8-14 day outlook

Source: cpc.ncep.noaa.gov

Natural Gas Technical Forecast

Prices shot higher over 1% higher on Wednesday, eclipsing a short-term descending trendline from the July multi-year high. Since then, the 38.2% Fibonacci retracement level has offered a floor, with the rising 12-day Exponential Moving Average also supplying a degree of support. Should prices reverse lower, the aforementioned trendline may come back into play as support. Alternative, the July high at 4.187 is the level to clear to the upside.

Natural Gas Daily Chart

nat gas chart

Chart created with TradingView

Natural Gas TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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