Natural Gas Forecast: Tighter Gas Supply, Record Demand Drive Prices Up

Natural Gas Highlights

• Prices rise due to reduced wind power, increased gas usage in electricity generation.
• Gas exports from Canada decline, exacerbating the tighter supply 
• U.S. oil and gas rig count drops significantly, potentially impacting future production.

Natural Gas Overview

Natural gas prices remained near a nine-week high on Friday, supported by a technical rebound and increased gas usage in electricity generation due to a decrease in wind power. Power generators burned more gas to compensate for the drop in wind power, resulting in less gas available for storage. Gas exports from Canada also declined due to wildfires in Alberta and other western provinces, causing a reduction in gas flowing to the United States.

Wind Power Drops, Gas Generation Surges

The percentage of U.S. power generated by wind was expected to decrease to 7% of the total, compared to a recent high of 17% in April. As a result, gas-fired power generation increased to approximately 43% during the week. The decrease in wind power and reduced gas exports from Canada contributed to the tighter supply of natural gas.

Refintiv: Record Gas Output, Demand Declines

Gas output in the Lower 48 states of the U.S. remained at a record level of 101.4 billion cubic feet per day (bcfd) in May, matching April’s monthly record. However, Refinitiv forecasted a decline in U.S. gas demand, including exports, from 93.0 bcfd to 89.4 bcfd the following week, before rising to 90.7 bcfd in two weeks.

LNG Export Gas Flows Decline

Gas flows to the major U.S. liquefied natural gas (LNG) export plants decreased to an average of 12.9 bcfd in May, compared to a record 14.0 bcfd in April. Maintenance work at various plants, including Cameron LNG in Louisiana and Cheniere Energy Inc’s Sabine Pass in Louisiana, contributed to the lower gas flows.

Sharp Decline in Oil, Gas Rigs

In the oil sector, U.S. energy firms reduced the number of oil rigs by 11 in a week, the largest decrease since September 2021. Additionally, 17 natural gas rigs were cut, marking the most substantial decline since June 2020. The combined oil and gas rig count dropped to 720, the lowest count since May 2022. This reduction in rig count could potentially impact future oil and gas production.

Stable Weather, Chart Pattern Improves

Weather projections indicated that the weather in the U.S. Lower 48 states would remain mostly near normal through June 3.

The natural gas futures contract rose above its 100-day moving average during intraday trade but failed to close above that level. The contract remained technically overbought, indicating a strong buying interest, with a relative strength index (RSI) of more than 70 for the second consecutive day. For the week, the contract gained approximately 14%, marking its largest weekly percentage increase since early March.

Technical Analysis

Natural gas hit its highest level since March 22 before running into resistance and retreating. Nonetheless, it remains on the bullish side of the nearest support $2.432 (R1) and the daily pivot at $2.168.

Its current chart pattern has put it in a position to test the next target level at $2.638 (R2). This could act like resistance on the first test. However, it’s also a potential triggerpoint for an acceleration to the upside with $2.902 (R3) the next target.