Natural Gas Price Fundamental Daily Forecast – Rising Output, Lower Demand Cap Prices

U.S. natural gas prices tumbled nearly 13% on Monday as a surprise jump in output and a change in the weather forecast encouraged speculative longs to take profits. Traders also cited outside factors as reasons for the long liquidation. These factors included a 6% drop in crude oil prices and a bearish outlook for Chinese energy demand.

Additionally, Reuters reported that European gas stockpiles were filling quickly due to gas flows from Russian pipes and liquefied natural gas (LNG) exports from the United States and elsewhere, stabilizing European prices at around four times U.S. gas futures.

At 04:10 GMT, June natural gas prices are trading $7.059, up $0.033 or +0.47%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $24.30, down $3.38 or -12.21%.

Short-Term Supply/Demand Outlook

Reuters reported that data provider Refinitiv said average gas output in the U.S. Lower 48 states had risen 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, output climbed to 95.9 bcfd on Sunday, its highest since late December.

Refinitiv also projected average U.S. gas demand, including exports, would slide from 90.6 bcfd this week to 89.4 bcfd next week as the weather turns seasonally milder. Those forecasts were similar to Refinitiv’s outlook on Friday.

LNG Flows Steady, but Exports Set to Drop

The amount of gas flowing to U.S. LNG export plants has risen 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, according to Reuters.

Since the United States will not be able to produce much more LNG anytime soon, it has worked with allies to divert LNG exports from elsewhere to Europe to help EU countries and others break their dependence on Russian gas.

Short-Term Outlook

Although there is an underlying bullish tone in the natural gas market because of long-term demand expectations from Europe, it was a couple of short-term traditional fundamental factors that drove prices lower and could keep a lid on the market over the near-term.

These factors are output and weather demand. For weeks they have been favorable, encouraging long-term traders to add to their already established bullish positions. On Monday, however, conditions changed and the short-term buyers booked profits.

If output continues to rise and heat stays out of the picture then prices are likely to be capped and the market is likely to drift sideways to lower over the near-term. Gas injected into storage is also expected to rise with some forecasting several triple-digit weekly injections as long as temperatures stay close to normal.