Natural Gas Forecast: Over-Supply Worries Send Prices Down to One-Week Low

Highlights

1. Natural gas futures fall over 6% due to higher output
2. Analysts predict over-supply
3. Freeport LNG export plant slightly overproducing

Overview

U.S. natural gas futures fell more than 6% on Thursday to a one-week low due to rising output, milder weather forecasts, and reduced heating demand.

The May delivery contract settled at $2.011 per million British thermal units, dropping more than 9% for the week.

Experts Warn of Over-Supply

Analysts predict over-supply due to the highest-ever supply levels for this time of year and storage ending the withdrawal season at the high end of the five-year range.

Refinitiv reported that the U.S. Lower 48 states had an average gas output of 99.9 billion cubic feet per day in April, up from 98.7 bcfd in March.

The government supply statistics show utilities pulled 23 billion cubic feet of gas from storage in the week ended March 23, slightly higher than analysts’ forecast of 21 bcf, and a five-year average of 0 bcf.

Weather Shifts Could Bring Price Break

Energy Ventures Analysis’ Robert DiDona predicted consolidation in prices for the next week or two, and if there is a surprise or big shift in weather models, then a price break could occur.

Freeport LNG Plant Runs Above Capacity

Freeport LNG’s export plant was on track to pull in about 2.24 bcfd of gas, slightly down from 2.26 bcfd on Wednesday.

Although above the 2.1 bcfd of gas that Freeport LNG can turn into liquefied natural gas (LNG) for export, LNG plants take in more gas than they can transform into LNG because some of the fuel powers equipment used to produce LNG.

Shell anticipates higher LNG output in the first quarter after outages at its Australian plants last year, as well as stable earnings from LNG trading.

Bearish Factors Weigh on Natural Gas

Natural gas prices fell on Thursday due to over-supply and a decrease in demand caused by milder weather.

Production continues to rise, which has resulted in government supply statistics showing utilities pulling gas from storage.

Although there is potential for a surprise or big shift in weather models, analysts predict consolidation in prices for the next week or two.

Freeport LNG’s export plant is slightly over-producing, and Shell expects higher LNG output in the first quarter.

The tone is expected to be bearish at the start of trading next week unless there is a major bullish shift in the weather over the weekend.