Natural Gas Forecast: Futures Fall over 6% Due to LNG Export Plant Reductions

Highlights

• Natural gas futures down over 6%
• Reductions in gas flowing to U.S. LNG export plants
• May futures contract expiration may lead to choppy trading

Overview

On Wednesday, U.S. natural gas futures are down over 6%, testing a one-week low due to an increase in output and a reduction in gas flowing to U.S. liquefied natural gas (LNG) export plants over the past few days.

Despite predictions of slightly colder weather and higher heating demand for the upcoming week, sellers still dominated the trade. However, gas flow to U.S. LNG export plants was expected to set a new record for the second consecutive month after Freeport LNG’s export plant in Texas returned from an eight-month shutdown in February.

At 15:00 GMT, Natural Gas is trading $2.126, up $0.005 or +0.24%. The United States Natural Gas Fund ETF (UNG) is at $6.74, down $0.26 or -3.71%.

Traders Bracing for Volatile Futures Expiration

Natural gas futures prices fell as the market looked for convincing indications of early summer heat in the latest forecasts. Natural gas traders could encounter choppy trading on Wednesday due to the May futures contract expiration. According to traders, gas futures often display more volatility on expiration day.

In the last year, these contracts have gained up to 6% on expiration day in April 2022, January 2023, and February 2023, and lost up to 11% in December 2022. On average, however, the front-month has only dropped about 0.5% during the last 12 expiration days, which is similar to the daily average decline of 0.3% for all front-month closes in the past year.

U.S. LNG Export Plant Flows Rise in April

Refinitiv, a data provider, reported that the average gas flows to the seven major U.S. LNG export plants have increased to 14.1 billion cubic feet per day (bcfd) in April, compared to a record 13.2 bcfd in March. These seven export plants can convert approximately 13.8 bcfd of gas into LNG.

As the facilities use some of the fuel to power equipment used to produce LNG, they can receive slightly more gas than they can turn into LNG.

On Wednesday, however, the feedgas to the LNG export plants was expected to decline to a two-week low of 13.5 bcfd on a daily basis due to reductions at Cheniere Energy Inc’s Sabine Pass in Louisiana and Corpus Christi in Texas.

Technical Analysis

From a daily technical viewpoint, Natural Gas is trading on the weak side of its daily pivot at $2.353, but above the nearest support at $1.904. The long-term technicals are bearish, but the short-term outlook indicates it’s trying to develop an upside bias. Trader reaction to the near-term pivot at $2.353 sets the tone.

A sustained move over the pivot at $2.353 will indicate the buying is getting stronger. This could lead to a near-term acceleration to the upside with R1 at $2.727 the nearest target.

However, a sustained move under Pivot at $2.353 will indicate the short-term selling pressure is getting stronger with a retest of the multi-year low at $1.904 the next likely target.

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