Natural Gas Price Fundamental Daily Forecast – Outlook for More Weather-Related Demand Driving Prices Higher

Natural gas futures are moving higher early Wednesday as traders continue to claw back Monday’s steep loss. Yesterday, the U.S. market recovered about 2% after plunging 20% over the prior two sessions, on a preliminary drop in daily output and forecasts for more demand next week than previously expected.

At 11:10 GMT, June natural gas futures are trading $7.483, up 0.098 or 1.33%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $24.80, up $0.49 or +2.02%.

According to Reuters, “Traders noted that increase in U.S. prices came even though gas futures were sliding in Europe as stockpiles there fill fast as Russia keeps supplying gas via pipeline and relatively high prices continue to attract liquefied natural gas (LNG) from the United States and elsewhere.”

Russia is likely acting quickly to sell as much gas it can to Europe before the European Commission decides to embargo Russian energy products.

Refinitiv Supply/Demand Numbers

Data provider Refinitiv said average gas output in the U.S. Lower 48 states has climbed to 94.8 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April. That compares with a monthly record of 96.1 bcfd in November 2021.

On a daily basis, however, output was on track to drop about 2.0 bcfd to near a two-week preliminary low of 93.7 bcfd on Tuesday due mostly to declines in Texas. That will be the biggest daily decline in overall output since early February.

Short-Term Weather Outlook

According to NatGasWeather for May 11-17, “It remains very warm to hot over Texas and the Southern Plains with highs of 80s and 90s, while the West into the Northern Plains remains mild & unsettled as weather systems track through.

The East will be nice despite a stalled weather system off the coast that will eventually track into the Southeast later in the week.

It will also be warm from the Southern Great Lakes to the South as high pressure rules and results in highs of 80s to lower 90s.

For late this week through mid-next week, the northern U.S. will be comfortable with highs of 60s and 70s, while the southern U.S. remains very warm with highs of 80s and 90s, besides hotter 100s in the Southwest deserts.”

Daily Forecast

According to Natural Gas Intelligence (NGI), “A new catalyst emerged on that front Tuesday, when Gas TSO of Ukraine (GTSOU) reported a force majeure affecting key hubs in Ukraine through which Russian gas flows to Europe. GTSOU blamed disruptions caused by Russian military forces.” This news should keep the market underpinned, which is probably why traders continue to buy the dips.

In another bullish development, the U.S. Energy Information Administration on Tuesday forecasted that with storage levels expected to lag behind the five-year average this summer, Henry Hub spot prices will spike to $8.59/MMBtu on average in the second half of this year.

Technically, June natural gas futures found support inside a retracement zone at $6.779 to $6.256 so we can call the Friday – Monday weakness a normal 50% to 61.8% correction.

The next upside target zone is $7.713 to $8.016. Sellers could come in on the first test of this area, but overcoming $8.016 could trigger an acceleration into $8.996 or higher.