Natural Gas Forecast: Weaker as Traders Await Demand Catalyst

Natural Gas Highlights

• Natural gas prices decline as traders wait for a demand driver
• Production decrease and higher demand expectations fail to lift prices
• Warmer weather increases gas demand, but LNG exports face challenges

Natural Gas Overview

Natural gas prices are edging lower on Friday after a small loss the previous session. Traders shrugged off a moderately bullish Energy Information Administration (EIA) storage report as they continued to wait for a significant demand driver.

At 08:45 GMT, Natural Gas is trading $2.0755, down $0.0145 or -0.69%. On Thursday, the United States Natural Gas Fund ETF (UNG) settled at $6.39, down $0.01 or -0.16%.

Natural gas futures in the United States traded lower on Thursday despite a decrease in production in recent days and expectations of higher demand in the next two weeks. Traders also ignored a weekly storage report that was lower than the seasonal average.

Natural Gas Storage Build Below Average

According to the U.S. Energy Information Administration (EIA), utilities injected 78 billion cubic feet (bcf) of natural gas into storage during the week ending on May 5. This slightly exceeded the 74-bcf estimate from analysts but fell short of the 76 bcf increase during the same period last year and the five-year average of 87 bcf. The storage build was lower than usual for this time of year due to persistent cold weather, which sustained high heating demand.

Steady Gas Output, Recovery in Canadian Imports

Gas output in the contiguous United States remained steady at 101.4 bcfd in May, matching the record set in April. However, daily output experienced a slight decline of 0.9 bcfd over the past few days, reaching a preliminary three-week low of 100.8 bcfd on Thursday. Canadian gas imports into the U.S. are expected to rise to 7.9 bcfd, recovering from a 25-month low of 6.7 bcfd caused by wildfires in Alberta that led to oil and gas production disruptions and pipeline flow reductions. Throughout the year, Canada has exported an average of 8.5 bcfd of gas to the United States.

Warmer Weather Could Boost Gas Demand

With the arrival of warmer weather, Refinitiv forecasts an increase in U.S. gas demand, including exports, from 91.3 bcfd this week to 91.6 bcfd next week as households and businesses activate their air conditioning systems. These projections indicate higher demand compared to the previous outlook. Gas flows to the seven major U.S. LNG export plants averaged 13.1 bcfd thus far in May, down from the record-setting 14.0 bcfd in April. This reduction primarily resulted from operational adjustments at Cameron LNG’s terminal in Louisiana and Cheniere Energy Inc’s facilities at Sabine Pass and Corpus Christi.

Technical Analysis

Natural gas is hovering just below its pivot at $2.168. This price is controlling the near-term direction of the market.

Look for the downside bias to resume on a sustained move under $2.168 with $1.962 (S1) the primary target.

An upside bias will develop on a sustained move over $2.168 with $2.432 (R1) the next likely target.