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James Hyerczyk
Natural Gas

Natural gas futures are trading higher on Tuesday, but remained near a 24-year low reached on Monday as forecasts for milder weather and less demand next week offset a projected increase in flows to liquefied natural gas (LNG) export terminals and a cooler outlook this week.

Despite today’s early strength, which can be attributed to overall demand for dollar-denominated commodities, the current slowdown in economic activity due to the coronavirus pandemic remains a major uncertainty for natural gas traders. No one is certain how long the economy will remain in shutdown mode, or parts of the United States in lockdown mode.

At 11:01 GMT, May natural gas is trading $1.707, up $0.034 or +2.03%.

Traders also said warmer weather next week should allow utilities to inject gas into storage for the first time this year. Data provider Refinitiv projected gas demand in the U.S. Lower 48 states, including exports, would slide from an average of 105.4 billion cubic feet per day (bcfd) this week to 100.1 bcfd next week. That compares with Refinitiv’s forecast on Friday of 104.7 bcfd this week and 103.4 bcfd next week.

Short-Term Weather Outlook

According to NatGasWeather for March 24 to March 30, “Warm conditions currently over the southern US will expand to include most of the US the next few days apart from portions of the cooler West. There will be areas of showers today along a stalled boundary over the Tennessee Valley, while a cooler system brings rain and snow showers to the West Coast. Highs will be very warm across the southern US with 70s and 80s, locally lower 90s, while mild across the Midwest to Northeast with highs of upper 50s to 60s. Weak cool shots will impact the far northern US late this week and again next weekend for a minor increase in national demand.”

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Daily Forecast

Gas prices have become highly correlated with crude oil prices due to the impact of the coronavirus on the energy industry.

Analysts at Enverus said on Monday, “…, with numerous companies announcing less ambitious drilling plans in 2020 because of poor oil economics, associated gas production is expected to decline throughout the year.”

“Some of the associated gas that would normally fall off at current price levels will still hit the market, as operators have hedges in place and will continue to produce. As operator hedges roll off, liquids storage begins to fill, and the market still sees poor production economics, operators will stop completing oil-directed wells and associated natural gas production will decline.”

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