Natural Gas News: Major Bankruptcy Filing Spooks Bullish Traders

James Hyerczyk
Updated: May 22, 2024, 13:56 GMT+00:00

Key Points:

  • Natural gas futures fall as profit-taking and cooler weather forecasts impact market sentiment.
  • Zachry Holdings' bankruptcy casts doubt on the $10 billion Golden Pass LNG project timeline.
  • Forecasted Atlantic hurricanes may disrupt natural gas production and LNG export operations.
Natural Gas News

In this article:

Lower Amid Technical and Fundamental Pressures

U.S. natural gas futures are down for the second consecutive session on Wednesday, influenced by significant selling pressure and profit-taking. The decline follows a test of the 200-day moving average early Tuesday and is exacerbated by technically overbought conditions and cooler weather forecasts. Additionally, the market’s four-day rally stalled as news emerged of a bankruptcy filing by a key contractor for a major LNG project, further dampening sentiment.

At 12:25 GMT, Natural Gas futures are trading $2.616, down $0.055 or -2.06%.

Weather Impact on Demand

According to NatGasWeather, the southern third of the U.S. will remain very warm to hot over the next five days, with temperatures in the upper 80s and 90s, and even reaching 100s locally. The East will also experience warmth today, with highs in the mid-80s to lower 90s, contributing to strong national demand. However, the 6-15 day forecast period indicates cooler weather systems impacting much of the eastern U.S., including Texas, which could moderate demand.

Bankruptcy Filing and Project Delays

The lead contractor for the Golden Pass LNG project, Zachry Holdings, filed for Chapter 11 bankruptcy protection on Tuesday. This $10 billion project, developed for QatarEnergy and Exxon Mobil, has faced cost challenges and disputes over funding. Exxon Mobil, holding a 30% stake in the project, stated it would review construction timing and provide updates in the future. The project is expected to significantly expand U.S. LNG exports once operational, but the bankruptcy filing has introduced uncertainty regarding its completion timeline.

Hurricane Season Risks

The forecast for a particularly intense Atlantic hurricane season this year poses additional risks to the U.S. oil and natural gas industry. Meteorologists expect 20-25 named storms, with the possibility of over 30. These storms can disrupt crude oil production and refinery operations, especially in the Gulf of Mexico and along the Texas and Louisiana Gulf Coasts, which house almost half of U.S. refining capacity.

Impact on Natural Gas Markets

While hurricanes could reduce natural gas production in the Gulf of Mexico, the impact on the overall U.S. supply is expected to be minimal due to the region’s declining production share. However, LNG export operations could face interruptions, as seen with Hurricane Laura in 2020. The United States has substantial LNG export capacity located on the Gulf Coast, making it vulnerable to weather-related disruptions.

Short-Term Market Forecast

Given the current selling pressure, cooler weather forecasts, and potential delays in LNG project completions, natural gas prices are expected to remain under pressure in the short term. The upcoming hurricane season further adds to the bearish outlook, with potential production and export disruptions likely to weigh on market sentiment. Traders should remain cautious and monitor weather developments and project updates closely.

Daily Natural Gas

U.S. Natural Gas futures are dropping on Wednesday after a test of the 200-day moving average at $2.761 the previous session sparked a wave of selling pressure. This indicator, which represents the long-term trend, is now new resistance.

Given the market’s propensity for volatility, it’s not too early to identify the 50-day moving average at $2.201 as a potential downside target.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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