Hotter Weather Forecasts Drive Market Sentiment
Natural gas futures rose on Friday, despite a bearish U.S. Energy Information Administration (EIA) storage report, driven by expectations of higher demand due to hotter weather forecasts. This marked the third consecutive day of gains for the July Nymex contract, which managed to rebound after initially dipping on Thursday.
At 13:01 GMT, Natural Gas futures are trading $2.835, up $0.014 or +0.50%.
EIA Storage Report Miss
The EIA reported a 98 billion cubic feet (Bcf) injection into underground storage for the week ending May 31, 2024. This pushed the total working gas in storage to 2,893 Bcf, which is 373 Bcf higher than the same time last year and 581 Bcf above the five-year average. Despite the larger-than-expected storage build, the market’s focus shifted to the upcoming weather-driven demand.
Production and Cash Prices
Current production levels stand at 98.5 Bcf per day, maintaining a steady supply. However, the national average cash price dropped by 4.0 cents. Traders seem more influenced by the anticipated heatwave rather than the short-term storage increase, suggesting that demand could soon outstrip the current supply pace.
Weather Outlook
From June 7-11, the U.S. is expected to experience above-normal temperatures, particularly in the Midwest and Northeast, with highs in the upper 70s and 80s. More extreme heat is forecasted in California and Texas, with temperatures reaching mid-100s. A hot upper ridge will dominate the western U.S., pushing temperatures into the 80s-100s, while cooler systems will temper the eastern regions into the 60s-80s. Overall, the strong demand is expected, before easing.
Market Forecast
Considering the hotter weather forecasts and the anticipated increase in cooling demand, the natural gas market outlook is bullish. The continued rise in temperatures is likely to drive higher consumption, offsetting the bearish storage data. Traders should watch for potential price increases as the demand for natural gas in power generation grows amid the heatwave.