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Natural Gas News: Steady as Traders Weigh Production and Heat Trends

By:
James Hyerczyk
Published: May 28, 2024, 14:14 GMT+00:00

Key Points:

  • Natural gas futures decline as technical pressures and fundamental factors drive sell-offs.
  • Last week, the EIA reported a 78 Bcf storage injection, below forecast, with production up amid higher prices.
  • Heatwave boosts Texas power usage; cooler northern U.S. forecasts reduce gas demand.
natural gas

In this article:

Flat Prices Following Early Session Weakness

U.S. natural gas futures are flat on Tuesday after recovering from early session weakness. Coming off heavy selling late last week, natural gas futures were nearly unchanged early Tuesday as traders considered stronger production and mixed June forecast trends ahead of the front-month contract expiration.

At 14:01 GMT, Natural Gas futures are trading $2.518, unchanged.

Recent Declines and Technical Pressures

Last week, U.S. natural gas futures experienced a significant decline due to technical pressures and fundamental factors. The market saw substantial sell-offs and profit-taking after testing the 200-day moving average early in the week. Cooler weather forecasts and a key bankruptcy filing further exacerbated the downturn.

Production and Storage Insights

Natural gas prices fell sharply, reflecting adjustments after recent spikes. Increased production in response to high prices played a significant role. The U.S. Energy Information Administration (EIA) reported a storage injection of 78 billion cubic feet (Bcf) for the week ending May 17, below the forecasted 85 Bcf and the five-year average of 91 Bcf. Despite this lower-than-expected injection, storage levels remain 29% above the seasonal norm.

Impact of Weather and Power Demand

Weather forecasts indicated cooler conditions in the northern U.S., reducing demand expectations. In contrast, the southern U.S. is experiencing a heatwave, with Texas power usage on track to set a new record for May due to increased air conditioning demand. The U.S. government’s prediction of an intense Atlantic hurricane season adds another layer of potential impact on energy demand and supply trends.

LNG Export and Pipeline Developments

LNG export activity has increased, with flows to export plants rising from an average of 11.9 Bcf per day in April to 12.7 Bcf per day in May. However, market uncertainty has been influenced by a bankruptcy filing from Zachry Holdings, the lead contractor for the $10 billion Golden Pass LNG project, raising concerns about the project’s completion timeline.

Technical and Spot Market Pressures

Technically, the market entered overbought territory last week, leading to the start of a correction. It may not be overbought at this time, but the indicator is far from signaling an attractive buy either. Negative spot market prices at hubs in Arizona and Southern California reflected broader market adjustments. Daily production in the Lower 48 states has increased slightly since early May, driven by higher prices encouraging drilling, though overall production remains lower compared to last year.

Market Forecast

Given the current production levels, mixed weather forecasts, and technical adjustments, the natural gas market outlook remains bearish in the short term. Traders should monitor weather developments and LNG export activities closely as these factors could influence future price movements.

Technical Analysis

Daily Natural Gas

Natural gas is putting in a mixed performance early Tuesday as we approach contract expiration.

Technically, the market is trading on the weakside of the 200-day moving average at $2.749 and on the strong side of the 50-day moving average at $2.227. So essentially, we have the longer-term trend down and the intermediate trend up.

The short-term range is $1.909 to $2.924, which makes its pivot at $2.416 the nearest downside target today. Watch for a technical bounce on the first test of this level, but if it fails, we could see an acceleration to the downside.

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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