Freedom expects gas prices to fall ahead of the heating season

U.S. natural gas prices may decline in the coming weeks despite last week’s rise. Freedom Broker Senior Analyst Sergey Pigarev and analyst Akmaral Burkutova expect demand from power plants to decrease and storage injections to accelerate. At the same time, they view a significant correction in gas prices and in shares of producing companies as a potential entry point for opening long positions ahead of the heating season.

U.S. gas inventories rose more than forecast

For the week ended September 18, inventories of natural gas in the U.S. increased by 53 Bcf to 3,351 Bcf. Analysts had expected a 50 Bcf rise. Stocks remain 4.2% below last year’s level but are 2.9% above the five-year average.

Despite the inventory build, U.S. gas prices rose 9.8% last week to $3.2 per million British thermal units. Short-term support came from an accident on a pipeline in West Virginia: market participants feared supply disruptions from the Appalachian region.

Why analysts expect prices to fall

In late summer and early autumn, power plants need less gas to generate electricity used for cooling buildings. According to Freedom Broker, the local trough in U.S. demand typically falls between the second half of September and mid-October. Lower consumption will allow storage to be replenished faster and could put pressure on prices.

Earlier, Freedom Broker noted that in early September, power-plant demand supported gas prices even though ample inventories restrained their growth. By mid-month, analysts warned that a seasonal decline in consumption was approaching: the need for space cooling is falling, while the heating season has not yet begun. 

What this means for shares of natural gas producers

Shares of the largest gas producers in the U.S. gained an average of 0.4% last week. In the short term, seasonal demand weakness could weigh on these stocks as well. However, Pigarev and Burkutova remain positive on the sector’s long-term outlook.

If gas prices and shares of producing companies correct significantly in late September–early October, the analysts consider opening long positions attractive in anticipation of rising fuel demand during the heating season. Previously, Freedom viewed seasonal demand as one of the key factors for gas producers’ shares.

This is not an individual investment recommendation.