Buying natural gas with target at 3.780 amid record heatwaves in US and Asia

Natural gas opened at $3.558 today, extending its rally as an extreme heatwave sweeps across the US and drives up demand. The main driver behind rising prices has been a sharp increase in air conditioning demand, particularly in Texas and the Southeast, where temperatures have reached record highs. With forecasts predicting even hotter weather next week, the energy sector is likely to remain supported by rising electricity consumption.

However, the situation is further complicated by risks in the Gulf of Mexico, where, according to the US National Hurricane Center (NHC), there’s a 40% chance of a tropical cyclone forming next week. While storms have limited direct impact on gas production (only 2% comes from federal offshore drilling), they can temporarily disrupt LNG export terminals and curb domestic demand, adding uncertainty to short-term forecasts.

Meanwhile, LNG exports continue to show steady growth, reaching a three-month high of 16.6 billion cubic feet per day. This increase is driven by elevated demand in Asia, where extreme heat waves have boosted energy needs, as well as the restoration of export capacity following last year’s disruptions.

The global gas market remains tight, particularly in Europe, where storage levels stand at just 61% of seasonal norms, well below the 71% average. Meanwhile, US natural gas inventories are holding 6% above their five-year average, helping to keep prices in check. Sanctions on Russia, rising Asian demand, and strained infrastructure continue to keep global prices elevated.

The scorching heat is likely to persist through the end of July, which could push prices higher or at least keep them steady at current levels.

Technical indicators suggest the market is overbought following the recent rally. The daily Stochastic Oscillator on the D1 chart is now above 80, signaling a potential short-term correction in the near future.

Current recommendation: 

Buy at the current price. Take profit – 3.780. Stop loss – 3.450.