Natural Gas Price Fundamental Daily Forecast – Weak Longs Bail on Output Rise, Lower Short-Term Demand

Natural gas futures are trading lower at the mid-session on Friday following the previous session’s technical reversal top. Earlier in the session, prices fell about 5%, hitting a one-week low amid reports of rising output and forecasts for less demand over the next two weeks than previously expected.

At 15:44 GMT, July natural gas futures are trading $8.670, down $0.225 or -2.53%. The United States Natural Gas Fund ETF (UNG) is at $29.38, down $0.35 or -1.18%.

Refinitiv Natural Gas Output/Demand Figures

Data provider Refinitiv said average gas output in the U.S. Lower 48 states has climbed to 95.0 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April, off the monthly record of 96.1 bcfd in November 2021.

Refinitiv projected average U.S. gas demand including exports, would hold around 88.5 bcfd through mid-June.

The average amount of gas flowing to U.S. LNG export plants rose to 12.5 bcfd so far in May from 12.2 bcfd in April. It hit a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG.

Short-Term Weather Forecast

According to NatGasWeather, “The overnight weather data was a little cooler but still held the timing of swings in national demand was preserved with strong national demand Sunday – Tuesday as the southern and eastern U.S. warms into the 90s, although still with a comfortable pattern forecast June 2-8 as most of the U.S. experiences pleasant highs of 70s and 80s besides hotter 90s over portions of the southern U.S.

The overnight data teased a hotter pattern attempting to gain ground June 9-14, although with more to prove if it’s to be expected.

Also of interest, yesterday afternoon’s longer range ECMWF predicted a slightly bearish pattern the first half of June but again forecast a hot pattern the second half of June as upper high pressure strengthens.

Essentially, the longer range EC wasn’t quite as hot as needed the front half of June but was relatively bullish the second half of June.”

Short-Term Outlook

The rise in output and the milder weather forecasts should not be construed as game-changing events. The market was expecting output to rise because that’s what it tends to do at this time of the year. Furthermore, the weather is always a variable although it tends to lean toward the hotter side as the U.S. approaches the actual start of summer around June 21.

Traders have become accustomed to buying dips so I don’t think we should fear this two day sell-off. We’re probably witnessing long-liquidation with a little hedge pressure mixed in.

We’ve said for weeks that the strength of any summer rally will be determined by the level of output and the intensity of the summer heat since storage is currently below the 5-year average. We’re sticking with this assessment.

It’s going to take some time to close the deficit so output and weather will remain the major price drivers. We expect to see a steady increase in output, but that only means it’s going to take a little more heat to drive the next leg of the rally.