Natural Gas Forecast: Energy Traders Wary as US NatGas Demand Falls

Natural Gas Highlights

• Record extraction, warmer weather lead to lower natural gas prices
• US Lower 48 natural gas output hits new record high
• Refinitiv predicts lower US gas demand for next week

Natural Gas Overview

On Wednesday, natural gas prices are declining as drillers continue to extract record amounts of gas from the ground. This is occurring simultaneously with warmer seasonal weather, which is decreasing heating demand, and the closure of liquefied natural gas (LNG) export plants for spring maintenance, resulting in a reduction of gas flow.

At 12:50 GMT, Natural Gas is trading $2.0395, down $0.0385 or -1.85%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $6.49, down $0.27 or -4.07%.

Energy Traders Pressure Gas Futures

Furthermore, energy traders have observed that gas futures are being pressured due to a 5% decrease in oil, gasoline, and diesel futures prices. The decrease in prices is driven by concerns about the economy as U.S. politicians discuss ways to avoid a debt default. Investors are also preparing for another U.S. interest rate hike this week.

According to data provider Refinitiv, the average gas output in the U.S. Lower 48 states has increased to 101.7 billion cubic feet per day (bcfd) in May, up from a previous record of 101.4 bcfd in April.

US Gas Demand to Decrease

Meteorologists have projected that the weather in the Lower 48 states will shift from colder-than-normal to near- to warmer-than-normal from May 6-17. With the weather turning seasonally warmer, Refinitiv has forecasted that U.S. gas demand, including exports, will decrease from 95.4 bcfd this week to 91.1 bcfd next week.

US LNG Exports Decline in May

The forecast for this week was lower than Refinitiv’s outlook on Monday, while its forecast for next week was higher. Gas flows to the seven big U.S. LNG export plants have dropped to an average of 13.5 bcfd in May, down from a record 14.0 bcfd in April. The decline was mostly due to reductions at Cameron LNG’s facility in Louisiana.

It’s worth noting that last month’s record was higher than the 13.8 bcfd of gas that the seven plants can turn into LNG since they use some of the fuel to power the equipment used in the production of LNG.

Technical Analysis

The current price action of Natural Gas suggests that investors are searching for a catalyst to propel the market higher. However, this is proving challenging during the shoulder season when the weather is moderate, neither too hot nor too cold.

From a daily technical perspective, Natural Gas is currently trading below the pivot point of $2.168, indicating a new resistance level. If the market manages to sustain a move above this pivot, it may suggest that the buying pressure is increasing, potentially leading to a surge towards the resistance level (R1) at $2.432 in the near term.

Conversely, if the price continues to trade below the pivot, it could signal the presence of sellers, which may result in a near-term decline towards the support level (S1) at $1.962.