Natural Gas News: Futures Dip to Two-Week Low Amid Reduced Demand Forecasts

US Natural Gas Market Trends

U.S. natural gas futures are testing a two-week low on Wednesday, primarily due to forecasts predicting reduced demand. This downturn in demand expectations is compounded by ongoing outages at Freeport LNG’s plant in Texas, which have significantly decreased the amount of gas flowing to liquefied natural gas (LNG) export plants.

At 14:01 GMT, Natural Gas futures are trading $1.670, down $0.044 or -2.57%.

Supply Adjustments and Price Fluctuations

The reduced prices are expected to drive U.S. gas usage to a record high in 2024, but simultaneously, gas production is projected to decline for the first time since 2020. This decline in production is a response to the pandemic’s impact on fuel demand. Notably, prices reached a low of $1.511 per mmBtu on February 27, the lowest since June 2020, due to near-record output and lower-than-usual heating demand this winter. Current gas stockpiles are estimated to be about 38% above normal levels.

Industry Response to Market Conditions

In reaction to the low gas prices, U.S. energy companies, including CNX Resources and others like EQT and Chesapeake Energy, are reducing their drilling activities. This cutback in output is a strategic response to the current market conditions.

Production and Demand Forecast

The financial firm LSEG reports that gas output in the Lower 48 U.S. states has decreased, with a notable drop in daily production to a seven-week low. This reduction aligns with the U.S. Energy Information Administration’s (EIA) forecast, which anticipates a decline in dry gas production in 2024, with a slight recovery expected in 2025. Domestic gas consumption, however, is projected to increase in 2024 before slightly easing in 2025 as prices rise.

Environmental Impact and Future Outlook

The EIA also forecasts a significant decrease in U.S. coal production, reaching its lowest since the early 1960s, as gas and renewable energy sources replace coal-fired plants. This shift is expected to lead to a decline in CO2 emissions from fossil fuels over the next few years.

Short-Term Market Forecast

Considering the anticipated decrease in natural gas production and the projected rise in demand, the U.S. natural gas market is likely to experience a tightening supply-demand balance. This scenario typically suggests a bullish outlook for natural gas prices in the short term. However, it’s important to monitor factors like storage levels, LNG export dynamics, and broader economic conditions, as they could significantly influence market trends and price movements.

Technical Analysis

Natural gas futures are lower for a third session on Wednesday, rapidly approaching the February low at 1.607.

Aggressive counter-trend buyers could come in on a test of this level due to the limited risk. The chart pattern we’re looking for is the closing price reversal bottom. Its formation won’t change the trend, but it will indicate the selling is greater than the buying at current price levels.