Natural Gas News: LNG Disruption Sets Up Bullish Natural Gas Futures Forecast

War in the Middle East Sends U.S. Natural Gas Surging

U.S. natural gas futures are sharply higher on Tuesday as traders price in the possibility of greater demand for U.S. LNG product. The catalyst behind the price surge is the widening war in the Middle East, which has led to a shutdown of a key shipping route, the Strait of Hormuz.

According to reports, about 20% of the global LNG trade ships through the Strait, putting at risk product intended for Europe and Asia. Additionally, Europe’s benchmark gas contract is higher by 35% on Tuesday, and up about 76% this week.

Compounding the problem is Qatar’s production shutdown on Monday following a drone attack on one of its major facilities. This has caused Goldman Sachs to estimate a reduction of about 19% to global LNG supply.

America’s Supply Advantage Comes With a Catch

The biggest risks are to Europe and Asia, which rely on foreign natural gas and LNG. The U.S. is sitting pretty with plenty of supply and benefits from both domestic shale and LNG production. Furthermore, with a supply squeeze expected in Europe and Asia, the U.S. will be called upon to fill the void.

This is where it gets tricky for the U.S. Currently, there is a small deficit to the 5-year average ahead of the Spring shoulder season. Under normal conditions like milder weather, lower demand and increased production, this deficit would be filled quickly and a strong storage rebuild would take place ahead of the summer cooling season.

Essentially, the U.S. doesn’t really want to face greater demand from LNG production and cooling needs with supply tightness. This would lead to higher domestic prices and more inflation. Furthermore, if summer temperatures are above average, it is possible that we could enter the winter season with a deficit also.

How Long the Strait Stays Closed Is the Key Question

It’s a very difficult situation right now and one that can lead to an acceleration of prices if the Strait of Hormuz remains closed for a prolonged period of time and LNG production facilities are damaged.

Look for higher prices over the short run as long as Middle East LNG can’t reach Europe or Asia in a timely manner. This is not the same as if it were taking place in the winter, however, depending on how long the war impacts LNG shipping and production, its influence can eventually extend into winter 2027.

Technical Outlook: Eyes on the 50-Day Moving Average

Technically, the trend is down, but it can turn up today if buyers can overcome the 50-day moving average at $3.125 and the swing top at $3.15 with conviction. We already broke through to $3.188 but that wasn’t with conviction, that was buy stops being set off. I expect traders to regroup today and make another run at a breakout over the 50-day MA with eyes set on a pair of 50% levels at $3.345 to $3.430.

More Information in our Economic Calendar.