Natural Gas Price Fundamental Daily Forecast – Slightly Lower Ahead of EIA Data on Weakened Heat Expectations

U.S. natural gas futures are trading lower on Thursday shortly before the release of the government’s weekly storage report. Simultaneously, the situation is different in the cash market today, however.

Reuters is reporting that U.S. spot power and natural gas prices soared on Thursday to their highest level in over a year in several parts of the country as consumers cranked up air conditioners to escape an early spring heatwave.

Additionally, even before the latest heatwave, gas futures were already trading near a 13-year high. The catalyst behind that is much higher prices in Europe and Asia due to excessive demand for U.S. liquefied natural gas (LNG) exports strong, especially since Russia’s Feb. 24 invasion of Ukraine.

At 13:53 GMT, July natural gas futures are trading $8.314, down $0.141 or -1.67%. The United States Natural Gas Fund ETF (UNG) is at $29.23, down $0.26 or -0.91%.

Demand Could Hit Record Levels in Some Parts of Country

Spot market demand is soaring in parts of the country.

Accordingly, in Pennsylvania, for example, the next-day power at the PJM West hub and gas at the Dominion South hub rose to their highest since the February freeze in 2021.

In Texas, the Electric Reliability Council of Texas (ERCOT), which operates the grid for most of the state, forecast demand would peak at a monthly record on Thursday. ERCOT said the grid had enough resources to meet demand early on Thursday.

Reuters said at the start of the current heat, ERCOT was forced to urge conservation on May 13 after several power plants shut unexpectedly, causing real-time prices to soar to over $4,000 per megawatt (MWh).

Daily Forecast

U.S. futures are drifting lower as overnight modeling weakened heat expectations for key demand areas at the end of May and into early June.

Today the U.S. Energy Information Administration (EIA) will release its weekly storage report at 14:30 GMT. Traders are expecting it to show a build in the upper 80’s.

Natural Gas Intelligence (NGI) is reporting that Bloomberg estimates are ranging from 83 Bcf to 93 Bcf, with a median build of 89 Bcf. Results of Reuters’ poll spanned estimates increases of 80 Bcf to 98 Bcf, with a median of 88 Bcf.

If the report comes in as expected, it would be in line with the five-year average injection for the period of 87 Bcf.

NatGasWeather added that “survey averages suggest a build of +85-87 Bcf, exact to the 5-year average. It was much hotter than normal over most of the U.S. besides the cooler West and East.”

“Two lines of thinking on the build, either early season heat overcomes strong wind energy for a build near +83-84 Bcf, and what our official estimate is. A second line of thinking is strong wind energy offsets last week’s heat and the build prints closer to +90 Bcf.”

Technically speaking, the key area to watch over the near-term is the retracement zone at $7.581 to $7.330. A test of this area could bring in new buyers. Moreover, if it fails, the market could break into the value zone at $5.283 to $5.630, making it more attractive to longer-term bulls.