Natural Gas Forecast: Oversold Conditions Offset Record Gas Output, Low Demand

Highlights

• U.S. gas production hits new high at 101.7 bcfd in May
• Refinitiv forecasts a decrease in U.S. gas demand due to warmer weather
• Gas flows to U.S. LNG export plants drop to 13.3 bcfd in May

Overview

Natural gas is higher at the mid-session on Friday after easing about 1% to a fresh three-week low earlier in the session as the output and after the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants declined due to spring maintenance. The market may have turned higher on forecasts for more gas demand this week and next than previously expected.

At 15:45 GMT, Natural Gas is trading at $2.003, up $0.037 or +1.88%. Earlier in the day, the market was on track for its lowest close since April 13 for a second day in a row. That also put the front-month U.S. futures contract down for a fifth day in a row for the first time since December 2022.

US Gas Production Sets Record

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

Cooling Demand Exceeds Heating First Time This Year

From May 5-16, meteorologists forecasted above-average temperatures to persist, resulting in cooling degree days (CDD) exceeding heating degree days (HDD) for the first time this year.

The weather is predicted to return to near-normal levels from May 17-20. HDDs are a measure of the daily average temperature being below 65 degrees Fahrenheit (18 degrees Celsius) to estimate the demand for heating homes and businesses, while CDDs estimate the demand for cooling homes and businesses by measuring the number of degrees the daily average temperature is above 65 F.

US Gas Demand Falls with Warmer Weather

Refinitiv predicted a decline in U.S. gas demand, including exports, as the weather turns warmer. The forecast suggests a decrease from 96.3 bcfd this week to 92.1 bcfd next week and 91.7 bcfd in two weeks. However, the projections for this week and next are higher than Refinitiv’s previous outlook on Thursday.

The seven major U.S. LNG export plants witnessed a decline in gas flows, averaging 13.3 bcfd in May, as opposed to the record high of 14.0 bcfd in April. The decrease was primarily due to reductions in Cameron LNG’s terminal in Louisiana, Cheniere Energy Inc’s Sabine Pass in Louisiana, and Freeport LNG’s terminal in Texas.

The record gas flows from last month exceeded the capacity of the seven plants to convert gas into LNG, which is 13.8 bcfd, as some of the gas is utilized to power the equipment needed for the LNG production process.

Technical Analysis

Natural gas is trading higher at the mid-session after reversing earlier weakness. The price action suggests oversold conditions are leading to a short-covering rally ahead of the weekend.

The reversal in prices has helped reestablish $1.962 (S1) as support. If buyers can sustain the move then look for a near-term return to $2.168. If the selling resumes then we could see a short-term extension of the weakness into (S2) at $1.698.