Natural Gas Price Fundamental Daily Forecast – Gap Lower Opening Puts Market in Position to Test Support Zone

Natural gas futures gapped lower on Monday after dropping more than 7% the previous session. After touching its lowest level since May 10 shortly after the opening, the market has rebounded a little, hovering just above a major support zone at $6.587 to $5.865.

After the steep drop on Friday, traders blamed the decline on forecasts calling for lower demand the week-ending June 10 and the week-ending June 17, but weather conditions could change at any time. That being said, we expect volatile conditions over the short-run.

At 09:35 GMT, August natural gas futures are trading $6.751, down $0.155 or -2.24%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $23.66, down $1.61 or -6.37%.

Extended Shutdown of Freeport Continues to Weigh on Prices

Prices were under pressure last week due to the extended shutdown of the Freeport liquefied natural gas (LNG) export plant in Texas. The Freeport shutdown on June 8 reduced the amount of U.S. gas available to the rest of the world, especially in Europe where most U.S. LNG has gone as countries there wean themselves off Russian energy after Russia invaded Ukraine.

After the initial reaction to the explosion at Freeport, prices stabilized. However, the markets were greeted by a fresh round of selling after Freeport announced last week that its plant will remain out of service for about 90 days. Officials now say the plant will remain out of service for about 90 days, and declared force Majeure on LNG shipments until September, according to a Bloomberg report.

Current Supply Shortage Could be Filled Quickly

According to analysts, the Freeport shutdown would allow utilities to quickly rebuild low U.S. gas stockpiles. The Freeport facility, the second-biggest U.S. LNG export plant, consumes about 2 billion cubic feet per day (bcfd) of gas, so a 90-day shutdown would make about 180 billion cubic feet (bcf) more gas available to the U.S. market.

Short-Term Weather Outlook

According to NatGasWeather, “Hot high pressure continues over much of the interior US with highs of 90s to 100s. National demand eased to seasonal levels this weekend as weather systems arrived over the Great Lakes, East, and West, although still hot over the interior US with highs of 90s to 100s.

National demand will increase to strong-very strong levels this week as high pressure strengthens over the East and Southeast with widespread highs of 90s to 100s from Texas to the Mid-Atlantic Coast, while warm to very warm elsewhere.”

Daily Forecast

The price action suggests we may be entering a weather market. We definitely expect to see more volatility in the short term, but figuring out the direction is going to be trickier to predict since the bullish outlook driven by:  tight US supplies, hot weather patterns, and strong LNG exports suddenly isn’t as impressive due to Freeport LNG surprisingly going quiet until at least September.

Technically speaking, the August natural gas futures contract is in a position to test a major long-term retracement zone at $6.587 to $5.865. So if buyers are going to return they’ll likely start showing up on a test of this area.