Natural Gas Price Fundamental Daily Forecast – Rally Stalls as Weather Models Diverge on June 1-4 Temperatures

Natural gas futures are trading lower late Friday, but recovering from a nearly 5% loss earlier in the session on reports of slowing rising output and forecasts calling for milder weather over the next two weeks than previously expected.

At 18:00 GMT, July natural gas futures are trading $8.205, down $0.195 or -2.32%. The United States Natural Gas Fund ETF (UNG) is at $27.84, down $0.14 or -0.50%.

Refinitiv Supply/Demand Daily Outlook

Data provider Refinitiv said average gas output in the U.S. Lower 48 states climbed to 94.9 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.

Refinitiv projected average U.S. gas demand, including exports, would hold near 89.7 bcfd this week and next before sliding to 88.7 bcfd in two weeks.

Liquefied Natural Gas Flows Jump

The average amount of gas flowing to U.S. liquefied natural gas (LNG) export plants rose to 12.3 bcfd so far in May from 12.2 bcfd in April. That compares with a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG. On a daily basis, however, LNG feedgas was on track to hit a near seven-week high of 13.3 bcfd on Friday, Reuters reported.

Since the United States will not be able to produce much more LNG soon, it has worked with allies to divert exports from elsewhere to Europe to help European Union (EU) countries and others break their dependence on Russian gas after Russia’s Feb. 24 invasion of Ukraine, Reuters added.

NatGasWeather Outlook

According to NatGasWeather for May 20-26, “The southern and eastern U.S. will remain hot the next two days with highs of 90s. Upstream over the Mountain West and Midwest, a cooler than normal weather system is sweeping through with showers and cool highs of 40s to 70s, including comfortable temperatures advancing into the southern and eastern U.S. late this weekend and early next week easing heat into the 70s to lower 80s.

Overall, light heating demand across the cool Mountain West and Midwest, while moderate cooling demand across the hotter versus normal southern and eastern U.S. until temperatures ease late this weekend and early next week.”

Short-Term Outlook

The current rally is stalling because of conflict in the U.S. (GFS) and European (EC) weather models.

The GFS and EC are in agreement over the next 7-days, but the GFS model is predicting more heat during the 8-15 day period.

Furthermore, the EC isn’t quite bullish enough during the June 1-4 period, but the GFS is predicting heat during this critical period.

According to NatGasWeather, “Essentially, the GFS is still hot and cool enough the next 15-days to satisfy, but the EC is to the bearish side for the 8-15 day period after cooler overnight trends.”

NatGasWeather added, “Will the nat gas markets notice the EC losing a little demand and not being quite as hot June 1-4?

Until that question is answered, July natural gas could be in a holding pattern. It’s likely to remain underpinned over the long-run because the fundamentals remain strong, but over the short-run, it’s a guess right now.

Technically speaking, the next short-term move is likely to be determined by how traders react to a possible test of $7.581 to $7.330.

Although the bullish traders want to see higher prices, I am confident that they will welcome a short-term pullback into a value area so they can add to their already established long positions.