Prospects for natural gas rally face headwinds, says Investing.com expert By Investing.com

Investing.com — The market currently faces a complex set of challenges that shape its outlook for the near future.

“However, the outlook is not without significant constraints. Investment in the sector has been particularly weak, driven by a reduction in capital spending across the board,” Alessandro Valentino, product manager at VanEck, told Investing.com.

Valentino pointed out that the increase in natural gas prices in the second quarter of 2024 was largely driven by increased demand for cooling in Asia, exacerbated by extreme summer temperatures.

In addition, persistent supply threats, particularly from Russian sources, continued to support high prices. However, despite these factors, the sector’s outlook remains clouded by several major obstacles.

One of the main concerns is the lack of investment in the natural gas sector. Reduced capital expenditure has hampered the development of new projects, while continued supply chain disruptions and heightened geopolitical risks such as the conflicts in Ukraine and tensions in the Middle East further complicate the sector’s ability to effectively meet growing demand .

Recent data from the US Energy Information Administration (EIA) indicates a moderate supply surplus, with working gas in storage as of August 8, 2024, standing at 3.332 billion cubic feet (Bcf), slightly above the five-year average. Meanwhile, China’s natural gas imports saw robust growth, with a 9.6% year-on-year rise in natural gas production in June.

“The combination of increased demand due to slower-than-expected global economic growth and moderate supply surpluses as reflected in recent data does not suggest huge price appreciation in the very near term,” Valentino said. The natural gas market remains extremely complicated, with various forces at play that could influence its direction in the coming months.

Piper Sandler cuts forecasts for natural gas and oil prices

Piper Sandler revised its energy market outlook, lowering price forecasts for both natural gas and oil.

The brokerage cut its 2025 Henry Hub natural gas forecast to $3.25 from $4.00 per MMBtu, citing slower growth in LNG exports and more efficient production.

A current glut of more than 450 Bcf in natural gas storage and new infrastructure, particularly in the Permian Basin, is also influencing the downward revision.

For oil, Piper Sandler adjusted its forecast for 2025, with West Texas Intermediate (WTI) now expected to average $71 a barrel, down from $81, and $75, down from 85 dollars.

The revisions reflect expectations of lower global demand and a potential recession in the US despite OPEC’s efforts to stabilize the market.

The energy outlook remains uncertain, with various factors at play that could further affect prices.