Natural Gas News: Bullish Sentiment Continues Amid Heightened Volatility

Grinding Higher

U.S. natural gas futures rose on Wednesday, rebounding from a pullback in the previous session, where it reached a multi-month high before slipping due to light profit-taking. The market retains a robust performance this week, buoyed by an upward revision in demand projections.

At 12:30 GMT, Natural Gas is trading $2.386, up $0.042 or +1.79%.

Market Behavior

The recent price volatility in natural gas is influenced by several factors, including fluctuations in production levels, storage data, and weather conditions. Despite a dip in May’s production in the Lower 48 U.S. states to 97.2 billion cubic feet per day from 98.1 billion in April, market sentiment remains positive. The completion of maintenance on Texas gas pipelines briefly increased daily outputs; however, overall production is still approximately 8% lower year-over-year.

Storage and Supply Factors

Significant oversupply in storage, standing about 31% above typical levels for this time of year, continues to challenge the market. The surplus has kept natural gas futures in an overbought condition, marking a rare seven consecutive days of such status since April 2022. Despite these pressures, the restoration of the Freeport LNG plant and increased gas flows to major U.S. LNG export plants, now averaging 12.7 bcfd in May, offer some support to the prices.

Export Demand and Market Sentiment

Traders have recently shifted their positions from net short to net long, reflecting a growing bullish sentiment influenced by an increase in LNG export capacity and marginal rises in demand forecasts. This sentiment aligns with the strategic scaling back of drilling activities by major producers like EQT and Chesapeake Energy earlier in the year, in response to falling prices.

Short-Term Forecast

In the short term, the natural gas market is expected to experience some volatility, yet the overall outlook remains cautiously bullish. Factors such as ongoing maintenance impacting export demand and substantial storage levels may temper the potential for significant price increases, but the uptrend is likely to stay intact as adjustments in domestic production and international demand for U.S. LNG exports continue to play a crucial role.

Natural gas appears poised to continue its price surge on Wednesday with the daily chart showing significant room to the upside.

The downtrending 200-day moving average at $2.775 is the primary upside target. It may take significant time to feed the rally that could take prices into this level. However, significant bullish news could speed up the process.

On the downside, critical support remains the 50-day moving average at $2.170.