Natural Gas News: Approaching Tropical Storm May Cause Demand Destruction

James Hyerczyk
Published: Jun 18, 2024, 12:28 GMT+00:00

Key Points:

  • U.S. natural gas futures rise due to profit-taking and short-covering, influenced by Gulf storm uncertainty.
  • Strong production and increased flow capacity cause a fourth consecutive decline in natural gas futures.
  • European gas prices climb as warmer weather increases demand and competition for LNG supplies.
Natural Gas News

Tropical Storm in Gulf of Mexico Influences Price Action

U.S. natural gas futures are seeing an uptick on Tuesday due to profit-taking and short-covering after a significant four-day decline. This movement is influenced by uncertainty surrounding a tropical storm in the Gulf of Mexico, although early indications suggest a bearish outlook.

At 12:17 GMT, Natural Gas futures are trading $2.838, up $0.050 or +1.79%.

Production and Flow Capacity Pressure Prices

Natural gas futures fell for the fourth straight session on Monday, weighed down by strong production levels and increased flow capacity. The mixed weather demand outlook has added to the bearish sentiment. According to NatGasWeather, the tropical system in the Gulf of Mexico is expected to bring cooling rains to Texas, which will reduce demand but might also disrupt LNG exports.

Weather Impact and Demand Outlook

From June 18-24, high pressure will dominate much of the southern and eastern U.S., with temperatures in the upper 80s to 100s. Cities like Chicago and those along the East Coast will experience highs in the mid-90s. The Northwest and Northern Plains, however, will see cooler temperatures and showers. Texas will cool down due to tropical rains, impacting overall demand, which is forecasted to be high this week.

In Europe, Dutch and British wholesale gas prices have risen due to warmer weather boosting power demand for cooling and increased competition for LNG supplies. The benchmark front-month contract at the Dutch TTF hub rose to 34.63 euros per megawatt hour, while the British day-ahead contract slightly increased to 82.15 pence per therm. Market nervousness around supply and LNG availability remains high, with ongoing concerns about Russian gas flows and competition from Asia and the U.S.

Supply and Export Challenges

Gazprom’s gas exports to Europe via Ukraine remain steady at 42.4 million cubic meters, but Norwegian gas supply has slightly decreased due to outages at the Visund and Skarv fields. Total Norwegian export nominations fell to 327 million cubic meters per day. Additionally, below-normal wind power generation in Europe is supporting higher gas-for-power demand until the end of the week.

Market Forecast: Bearish Outlook

Given the strong production, increased flow capacity, and mixed weather demand, the short-term outlook for natural gas futures appears bearish. While the tropical storm’s cooling effects and potential disruptions to LNG exports may provide temporary support, the overall sentiment remains cautious. Traders should closely monitor the storm’s progression and its impact on supply and demand factors.

Technical Analysis

Daily Natural Gas

Natural gas is edging higher on Tuesday as tropical storm driven uncertainty is leading to some ligh short-covering.

Contrary to belief, tropical storms in the Gulf of Mexico are typically bearish because they are usually accompanied by cooling rains that drive down demand. Furthermore, demand could also be affected negatively if the storm knocks out an LNG facility. Storms that hit Florida usually lead to a loss of power, which is another negative for demand.

That being said, rallies are likely to be sold with the 200-day moving average at $2.934 the nearest resistance.

On the downside, support is the 50-day moving average at $2.586.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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