Natural Gas News: Increased Production and Inventories Pressure Prices

U.S. Natural Gas Prices Fall as Summer Production Ramps Up

U.S. natural gas prices are trading sharply lower on Thursday, influenced by rising summertime production and higher than expected weekly government inventory data. Natural gas futures have continued to decline, reflecting market concerns over increased supply.

Production Increases Expected

Analysts at Tudor, Pickering, Holt & Co. (TPH) indicate that with the onset of summer, domestic natural gas production is set to climb from the shoulder season lows. TPH analyst Matt Portfolio notes that producers are gearing up for higher demand during the hotter months, contributing to the recent downturn in prices.

Inventory Data Exceeds Expectations

The U.S. Energy Information Administration (EIA) reported a net increase of 84 billion cubic feet (Bcf) in natural gas inventories for the week ending May 24, 2024, surpassing the consensus estimate of 77 Bcf. Total stocks now stand at 2,795 Bcf, significantly higher than last year’s levels and the five-year average of 2,209 Bcf. This robust inventory is putting additional downward pressure on prices.

Weather Patterns Affecting Demand

According to NatGasWeather, from May 30 to June 5, the southern U.S. and California will experience very warm to hot conditions, with temperatures ranging from the mid-80s to 100s in the Southwest deserts. The northern two-thirds of the country will see milder temperatures, with highs in the 60s to lower 80s. The Midwest and Northeast are expected to warm into the 80s next week. Despite these conditions, national demand for natural gas is projected to remain strong.

Summer Electricity Generation Outlook

The EIA’s May 2024 Short-Term Energy Outlook forecasts that natural gas consumption for electricity generation will remain near the record levels set last summer. Although overall U.S. electricity generation is expected to increase by 3%, much of this growth will come from renewable energy sources. The EIA projects natural gas consumption for electricity generation will average 44.7 Bcf per day during the peak summer months, consistent with last year’s record.

Market Forecast

Given the increase in production and higher-than-average inventory levels, the short-term outlook for U.S. natural gas prices is bearish. Traders should prepare for potential further declines in prices as the market adjusts to the increased supply and steady demand.

Technical Analysis

Natural gas prices accelerated to the downside on Thursday after crossing to the weakside of a key pivot at $2.651. This puts the market in a position to challenge the 50-day moving average at $2.469. This indicator is controlling the intermediate trend.

The longer-term trend is being controlled by the 200-day moving average at $2.974. It recently stopped a rally and should be considered major resistance.