Natural gas futures soared nearly 9% to its highest level since Jan. 25 on Friday as the supply of gas flowing to U.S. liquefied natural gas (LNG) export plants set to hit a daily record high and on weather forecasts for colder temperatures and higher heating demand in two weeks than previously expected.
On Friday, April natural gas futures settled at $3.009, up $0.244 or +8.82%. The United States Natural Gas Fund ETF (UNG) closed at $9.89, up $0.72 or +7.85%.
Shorts Getting Spooked by Freeport LNG’s Recovery Progress
Short-sellers who dominated the natural gas market for months are now heading for the hills as the amount of gas flowing to LNG export plants was on track to hit a daily record high on Friday as Freeport LNG’s facility in Texas keeps using more fuel after exiting an eight-month outage in February. The plant shut after a fire in June 2022.
Freeport LNG’s export plant was on track to pull in about 1.4 billion cubic feet per day (bcfd) of gas on Friday, up from 1.2 bcfd on Thursday, according to data provider Refinitiv, a sign the company likely had started the second of three liquefaction trains to turn gas into LNG, Reuters reported.
When operating at full power, Freeport LNG, the second-biggest U.S. LNG export plant, can turn about 2.1 bcfd of gas into LNG for export, Reuters said.
Record LNG Feedgas Demand
Total gas flowing to U.S. LNG export plants has risen to 13.4 bcfd so far in March from 12.8 bcfd in February. That compares with a monthly record of 12.9 bcfd in March 2022 before the Freeport LNG facility shut.
Refinitiv’s Supply and Demand Outlook
Refinitiv said average gas output in the U.S. Lower 48 states has risen to 98.4 bcfd so far in March from 98.2 bcfd in February. The monthly record was 99.9 bcfd in November 2022.
Refinitiv forecast U.S. gas demand, including exports, would ease from 120.9 bcfd this week to 119.1 bcfd next week, then jump to 127.4 bcfd in two weeks.
Near-Term Weather Outlook
Meteorologists forecast the weather in the Lower 48 states would remain mostly colder-than-normal through March 18 after some warmer-than-normal days from March 3-6. Refinitiv forecast U.S. gas demand, including exports, would ease from 120.9 bcfd this week to 119.1 bcfd next week, mostly on expectations that power generators would burn less gas to produce electricity, before jumping to 127.4 bcfd in two weeks when the weather turns colder and heating demand picks up.
Short-Term Outlook
The fundamentals have quickly shifted to the bullish side in the natural gas market and this is fueling a power short-covering rally. Driving prices higher is increasing heating oil and LNG demand.
Technically, the short-covering has been strong enough to take out three main tops at $2.700, $2.734 and $2.836. The next target is the Jan. 24 main top at $3.256.
The short-term range is $.256 to $2.113. The market is currently trading on the strong side of its retracement zone at $2.819 to $2.685, making it support.
The main range is $5.397 to $2.113. If all goes as planned, we could see a test of its retracement zone at $3.755 to $4.143 before the end of March.