Natural Gas News: Will Lower Demand and Higher Production Drive Bearish Trend?

Natural Gas Futures Decline Amid Technical and Fundamental Pressures

U.S. natural gas futures experienced a significant decline last week, driven by a combination of technical pressures and fundamental factors. The market saw a substantial sell-off 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.

Last week, Natural Gas futures settled at $2.520, down 0.106 or -4.04%.

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 the 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., contributing to reduced demand expectations. In contrast, the southern U.S. experienced 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 also predicted an intense Atlantic hurricane season, potentially impacting energy demand and supply trends.

LNG Export and Pipeline Developments

LNG export activity 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, the market was also influenced by a bankruptcy filing from Zachry Holdings, the lead contractor for the $10 billion Golden Pass LNG project. This introduced uncertainty regarding the project’s completion timeline​​​​.

Technical and Spot Market Pressures

Technically, the market was in overbought territory, leading to a correction. Negative spot market prices were observed at hubs in Arizona and Southern California, reflecting broader market adjustments. Daily production in the Lower 48 states increased slightly since early May, driven by higher prices encouraging drilling, although overall production remains lower compared to last year​​.

Market Forecast: Bearish Outlook

Looking ahead, the natural gas market is likely to remain under pressure. Increased production may outpace demand, especially with milder weather conditions expected in the northern U.S. However, high temperatures in the southern U.S. and potential disruptions from the hurricane season could add volatility. Gas demand is projected to ease from 92.5 Bcf per day this week to 91.6 Bcf per day next week. While LNG export flows have risen, the overall market sentiment remains bearish in the short term​​.