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Natural Gas News: Will Lower Production Finally Fuel Short-Term Momentum Shift?

By:
James Hyerczyk
Published: Apr 21, 2024, 06:46 GMT+00:00

Key Points:

  • Traders anticipate rally with cooler weather, reduced supply.
  • Spot market sees negative prices in several states.
  • Power sector records high demand in Q1 2024.
Natural Gas News

In this article:

U.S. Natural Gas Market Weekly Recap

U.S. natural gas futures drifted lower last week. However, some traders are attempting to build a case for a short-covering rally amidst a mix of supply reductions and increasing demand predictions driven by cooler weather forecasts. While the market continues to grapple with a significant oversupply, evidenced by gas stockpiles being 35% above seasonal norms, recent production cutbacks and shifting weather patterns suggest a volatile price environment ahead and perhaps a shift in sentiment.

Last week, Natural Gas Futures settled at $1.752, down $0.018 or -1.02%.

Weekly Natural Gas

Market Supply and Demand

Recent declines in natural gas production, approximately 10% lower in 2024, have begun influencing market sentiment. Major producers like EQT and Chesapeake Energy have reduced operations, contributing to the lowest number of operational gas rigs since December 2021. This cautious approach in the drilling sector reflects the ongoing struggle with low prices and market oversupply.

Spot Market Impact

In the spot market, several states, including Texas, California, and Arizona, have experienced negative power and gas prices this spring, primarily due to low demand, a surplus of renewable energy, and logistical challenges from pipeline maintenance. Despite reduced gas output in the Lower 48 U.S. states and lower liquefied natural gas (LNG) feedgas flows, demand is expected to pick up due to persistently cooler weather through late April.

The U.S. power sector’s natural gas demand reached a record high in the first quarter of 2024, driven by unusually cold weather and low wind generation in January. This trend continued into April, with demand still outpacing last year’s figures. However, forecasts suggest that the record-breaking demand streak might taper off in summer as renewable energy sources increase and some coal-fired generation returns.

Weekly Market Forecast

Looking ahead, the U.S. natural gas market could be poised for a bullish turnaround in the short term although most of the move will be short-covering and probably some bottom-picking. As temperatures rise post-April, combined with a rebound in LNG feedgas flows, demand is expected to strengthen. This surge in demand could potentially mitigate some of the current oversupply, stabilizing or even increasing prices in the coming weeks. Despite a long-term outlook of fluctuating power sector demand, the immediate future suggests a potential bullish momentum shift for natural gas prices next week.

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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