Natural Gas Price Fundamental Daily Forecast – Demand Dives after Freeport LNG Extends Shutdown

Natural gas futures are down double-digits late Tuesday. Traders are reacting to the news that Freeport LNG would remain fully offline until September with only partial operation through to the year end.

At 19:00 GMT, August natural gas futures are trading $7.245, down $1.374 or -15.94%. The United States Natural Gas Fund ETF (UNG) is at $24.57, down $4.84 or -16.46%.

Divergent Reaction in United States and Europe

The Freeport news sent U.S. natural gas prices plunging and European prices soaring. Prices are falling in the U.S. because the natural gas used to produce about 20% of LNG exports can now be kept in storage for cooling needs. Meanwhile, in Europe, buyers are seeking alternatives to Russian gas since its invasion of Ukraine. The Europeans need to replenish supply before winter and apparently sellers are raising prices as demand soars.

The Freeport LNG facility can process 2.1 billion cubic feet per day of natural gas into a super-cooled liquid for shipping, and had been running near capacity in recent months, according to consultancy Rystad Energy. Some 1.17 bcfd of its output had been going to Europe as of May, up from 0.81 bcfd in March, Rystad said.

More gas will now be available in the United States to refill low stockpiles. Longs have been loading up in anticipation of a supply shortage during the U.S. summer cooling season so this is bearish news. But the Freeport news is forcing them to liquidate their bullish positions, while they re-evaluate the supply/demand situation.

Current Supply/Demand Pictures Ex-Freeport

Data provider Refinitiv said average gas output in the U.S. Lower 48 states slid to 94.9 billion cubic feet per day (bcfd) so far in June from 95.1 bcfd in May. That compares with a monthly record of 96.1 bcfd in December 2021.

On a daily basis, U.S. output was on track to drop by 1.9 bcfd to a preliminary 93.7 bcfd, the lowest since late April. That would be the biggest one-day decline since early February.

Additionally, with hotter weather coming, Refinitiv projected average U.S. gas demand, including exports, would rise from 93.6 bcfd this week to 94.1 bcfd next week.

Short-Term Outlook

We expect to see heightened volatility in the market until the professionals can figure out the exact impact of the Freeport outage on the supply/demand situation. In the meantime, the market could still move lower until the last speculative long is taken out of the market.

The Freeport news is trapping some bullish speculators at extremely high levels. Meaning sellers are going to press the market hard in an effort to drive them to the sidelines.

The traditional fundamentals are still bullish so we expect traders to continue to come in on the dips. Except the buying will now come from much lower price levels. Our charts indicate that we’re not likely to see any aggressive buying until August futures hit the $6.587 to $5.865 value zone.