NatGas Supported by Worries Over US Ability to Build Storage Supplies

Natural gas futures are edging lower early Wednesday after rocketing higher the previous session amid a combination of bullish factors including “warmer weather patterns, the potential for robust summer cooling demand and vulnerable storage levels,” Natural Gas Intelligence (NGI) reported.

The U.S. market jumped more than 8% on Tuesday, edging closer to a more than 13-year peak hit last month. Besides the factors reported by NGI, buyers were also encouraged by increased demand for U.S. liquefied natural gas (LNG) exports.

At 06:05 GMT, June natural gas futures are trading $7.867, down $0.087 or -1.09%. On Tuesday, the United States Natural Gas Fund (UNG) settled at $26.80, up $0.80 or +3.08%.

Increasing Foreign Demand Fueling Worries about Reducing US Storage Deficit

The U.S. gas market remains mostly shielded from much higher global prices because the United States is the world’s top gas producer, with all the fuel it needs for domestic use while capacity constraints inhibit exports of more LNG no matter how high global prices rise, according to Reuters.

“With any increase in production going forward likely to find its way into the more financially attractive export trade, the ability to reduce a 300+ bcf U.S. deficit anytime soon will keep this market well supported,” advisory firm Ritterbusch and Associates said in a note.

More Sanctions against Russia will Increase Demand for US Gas

The European Union (EU) is preparing sanctions on Russian energy, with possible exemptions for some countries, and warned that complying in full with Moscow’s proposed scheme to receive gas payments in roubles would breach existing EU sanctions, according to Reuters. Meanwhile, the U.S. is going to be expected to cover any short-falls in Europe.

“While domestic demand does not seem to be too much out of line with normal conditions, it is the international pull of gas away from the U.S. that concerns the market,” said Zhen Zhu, managing consultant at C.H. Guernsey and Co in Oklahoma City.

“There will be more demand from the international market especially the European and Asian markets. This increased demand is not expected to be just transitory.”

Short-Term Outlook

With a solid foundation in place because of the steady demand for U.S. LNG, all it is going to take is a hot summer and a jump in cooling demand to drive the market into multi-year highs throughout the year.

From now until the end of June, all eyes will be on the U.S. weekly storage report. Seasonally, we should start to see triple-digit injections. Falling short of these expectations will be another bullish catalyst that launches prices sharply higher.