Natural Gas Forecast: Prices Slide as Storage Build Dampens Market Sentiment

Highlights

• Larger-than-expected storage build pressures natural gas prices.
• Weather forecast to determine impact of anticipated mid-June heat.
• Rising power sector demand will contribute to upward movement of prices.

Overview

Natural gas is edging lower on Friday following the U.S. Energy Information Administration’s (EIA) report of a larger-than-expected storage build last week. Despite the support from forecasts of warmer weather, this storage build overshadowed the market sentiment. As a result, prices are anticipated to trade sideways-to-lower until the midday weather model runs shed light on whether the anticipated mid-June heat will materialize.

Natural Gas Storage Increases, Surpassing Analyst Expectations

The EIA’s report revealed that U.S. natural gas supplies in storage increased by 104 billion cubic feet for the week ending June 2. Analysts had expected a storage increase of 114 billion cubic feet on average, according to a survey conducted by S&P Global Commodity Insights.

However, it is important to note that the data included revisions related to the reclassification of some natural gas from working gas to base gas. Working gas represents the volume of gas available in the market. The EIA’s reclassifications resulted in a decrease of 14 billion cubic feet in working gas stocks in the nonsalt South central region, implying a net increase of 118 billion cubic feet to working gas stocks for the week. Currently, total working gas in storage stands at 2.550 trillion cubic feet, which is 562 billion cubic feet higher than last year and 353 billion cubic feet above the five-year average.

Surging Cooling Demand

Refinitiv, a data provider, forecasts an increase in the number of cooling degree days (CDDs) over the next two weeks. The expected CDDs of 167 surpass the 30-year normal of 149. CDDs serve as an indicator of the demand for cooling based on the average temperature exceeding 65 degrees Fahrenheit (18 degrees Celsius). Over the short-run, NatGasWeather predicts an active weather system across the U.S., resulting in showers, thunderstorms, and mild to moderate temperatures. The Northeast will experience the coolest temperatures, with lows dipping into the 40s.

Refinitiv:  Consumption Jumps, Production Stagnant

Natural gas consumption by U.S. power sector is expected to rise from 31.8 bcfd to 38.3 bcfd. Demand is expected to increase due to higher electricity production from air conditioning. Furthermore, there should be less gas available for winter storage. Prices could move up with higher demand.

On the production side, Refinitiv data indicates that production will remain relatively stagnant at 102.3 bcfd this week compared to 103 bcfd last week. However, production is expected to edge up slightly to 102.4 bcfd next week.

Promising Outlook

Considering the strength observed in power burns, the favorable warm weather forecast, and the reclassification of natural gas in the storage report, the natural gas market should find some support in the coming weeks. These factors combined contribute to a positive outlook for natural gas prices in the short term.

Technical Analysis

Natural gas is edging lower on Friday after crossing to the weakside of the PIVOT at $2.190.

The big test for counter-trend bullish traders is whether new buyers will come in to support the market on this pullback. If they do then a secondary higher bottom will form. If regaining the pivot creates enough upside momentum then we could see a near-term rally into $2.465 (R1).

A sustained move under $2.190 will signal a resumption of the downtrend with $2.036 the next target.

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