Natural Gas Forecast: Rebound Driven by Revised Demand Forecasts, Record Exports to Mexico

Highlights

• Natural gas prices rebounding on revised demand forecasts, record exports.
• Despite high production and lower LNG flow, prices remain firm.
• Anticipated increase in demand and growing interest in energy trading.

Overview

Natural gas prices are showing signs of a rebound as traders react to revised demand forecasts and record exports to Mexico. Despite near-record production levels in the United States and lower gas flow to LNG export plants, prices remain firm. The surge in interest in energy trading is reflected in the open interest in NYMEX gas futures, which reached its highest level since September 2021.

At 09:57 GMT, Natural Gas is trading $2.1135, up $0.0235 or +1.12%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $5.99, up $0.05 or +0.76%.

Spot Market Gas Prices Plunge

In the spot market, next-day gas prices at the U.S. Henry Hub benchmark in Louisiana dipped to $1.77 per mmBtu, the lowest since October 2020. This drop can be attributed to low demand resulting from mild weather conditions. However, meteorologists expect temperatures in the Lower 48 states to remain mostly average until June 15, after which they are anticipated to rise above normal levels from June 16-17.

Gas Demand Surges Higher

Refinitiv, a data provider, projects that U.S. gas demand, including exports, will increase from 91.0 bcfd this week to 93.9 bcfd next week and 95.0 bcfd in two weeks as warmer weather sets in. This forecast indicates a higher demand than previously anticipated. Notably, exports to Mexico have already risen to 7.6 bcfd in June, surpassing the previous month’s record. Additionally, gas flows to major U.S. LNG export plants have increased to 13.1 bcfd this month, although this figure remains below April’s record due to ongoing maintenance at various facilities.

Gas Storage Surpasses Expectations

On the supply side, utilities added 110 billion cubic feet (bcf) of gas to storage during the week ending May 26, exceeding analysts’ expectations. This increase can be attributed to the mild weather conditions that reduced both heating and cooling demand. As a result, gas stockpiles now stand at 2.446 trillion cubic feet (tcf), representing a 16.6% surplus compared to the five-year average for this time of year.

Short-Term: A Little Less Bearish

In summary, natural gas prices are on the rise despite robust U.S. production and limited gas flow to LNG export plants. The anticipation of warmer weather and increasing demand, particularly from Mexico, is driving the upward trend. The surge in open interest in NYMEX gas futures indicates growing interest in energy trading. However, the mild weather conditions have led to lower spot market prices, highlighting the impact of weather on gas demand.

Technical Analysis

Natural gas is higher early Monday, but still trading on the bearish side of the PIVOT at $2.190, putting it in a weak position. This level is also resistance. With the main trend down, look for sellers to re-emerge on the first test of this level.

A sustained move under $2.190 puts the market in the hands of strong sellers. If this continues to generate enough downside pressure, we could see a retest of the recent bottom at $2.136 and eventually $1.761 (S1).

Overtaking $2.190 will signal the return of buyers. If this move is able to generate enough upside momentum then look for a near-term rally into $2.465 (R1). The move will likely be fueled by short-covering since the market is still decisively bearish.

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