Natural Gas Tests $3 as LNG Demand Meets Production Ceiling

Natural Gas Weekly Technical Analysis

The natural gas market rallied for the week as we found ourselves testing the $3 level in the futures contract, as storage numbers are becoming a little less bearish. That is to be expected this time of year. We start to think about the fall. We start to think about prices rising as demand increases.

And the surplus this last week from the EIA report just showed an additional 30 Bcf injection. So that’s broadly in line with expectations, but somewhat small. 30 billion cubic feet strong, but the surplus versus the 5-year average has narrowed to about 160 billion cubic feet, while inventories are now roughly around 50 billion cubic feet below last year.

The late summer heat does remain a little bit supportive. It’s been hot a couple of days here and there, so air-conditioning demand does pick up.

LNG Export Demand and Production Ceilings

And liquefied natural gas demand remains structurally strong, with exports being about 17 to 18 billion cubic feet a day during the first half of the year, up 23% year-over-year as new export capacity has come online.

Production, though, remains a major ceiling. High US gas output and still comfortable storage prevent the domestic market from fully pushing the rally in ways you see in places like Asia and Europe.

This is a market that is starting to enter the time of year when people get a little bit more bullish. I’m starting to as well. But we still have a little bit of a wiggle here at the $3 level that causes a bit of a headache.

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