Natural Gas Forecast: Prices Face Downward Pressure Amid Ample Supply, Milder Weather

Highlights

• Natural gas prices decline due to storage report and bearish outlook.
• Forecasted increase in working gas attributed to strong production rates and mild weather.
• Ample storage, increased production, and milder weather to impact natural gas prices this summer.

Overview

Natural gas futures are trading lower shortly after the release of the latest government storage report. Traders are also reacting to a potentially bearish report from the Natural Gas Supply Association.

At 14:35 GMT, Natural Gas is trading $2.293, down $0.099 or -4.14%. The United States Natural Gas Fund ETF (UNG) is at $6.80, down $0.26 or -3.68%.

Working Gas in Storage Rises by 96 Bcf

According to the EIA estimates, working gas in storage was 2,336 Bcf as of Friday, May 19, 2023. This represents a net increase of 96 Bcf from the previous week. Stocks were 529 Bcf higher than last year at this time and 340 Bcf above the five-year average of 1,996 Bcf. At 2,336 Bcf, total working gas is within the five-year historical range.

Analysts and traders surveyed by WSJ were forecasting a larger, 101 Bcf increase in working gas in storage. This is above the normal injection for this time of year, which is 96 billion cubic feet. The forecasted increase is attributed to strong production rates and mild weather that weakened demand.

NGSA Expects Lower US Natural Gas Prices

The Natural Gas Supply Association (NGSA) stated that ample storage levels, milder weather, and increased production will likely lead to downward pressure on US natural gas prices this summer. Despite reaching record levels of customer demand, with an average of 97 billion cubic feet per day (bcfd), prices at the Henry Hub are expected to average below last year’s $7.10 per million British thermal units (mmBtu) from April through October.

Higher Production, Storage Impact Prices

The NGSA anticipates that prices would be influenced by a 3% increase in production to 101.3 bcfd during the summer, along with higher storage levels at 1.83 trillion cubic feet (tcf) compared to 1.38 tcf last summer.

Producers Tackle Strong Demand

The NGSA emphasized that producers are responding to the challenge of meeting strong summer demand for natural gas domestically while also supplying an under-supplied global market. Additionally, the summer of 2023 is projected to have 7% fewer cooling degree days compared to 2022, which will impact natural gas consumption.

LNG Exports Thrive

The NGSA expects LNG exports to remain strong as European countries seek alternatives to Russian gas, and the US power sector fuel mix transitions from coal to a combination of gas and renewables. Consequently, the association emphasizes the importance of additional natural gas pipeline capacity to ensure grid reliability and balance.

Technical Analysis

Natural gas is trading on the weakside of $2.432 (R1), making it new resistance. Overcoming this level will indicate the return of buyers with $2.638 (R2) the next target.

A sustained move under $2.432 (R1) will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into $2.168 (Pivot), followed by $1.962 (S1)

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