Production Dip Drives May NatGas Toward $6.457 High

Natural gas futures are trading higher shortly before the mid-session on Tuesday after spiking to the upside shortly after the opening. Although supply fears due to strong Liquefied Natural Gas (LNG) from Europe have been propping up prices for several months, today’s strength is being fueled by updated data showing a production dip.

At 15:03 GMT, May natural gas futures are trading $6.087, up $0.375 or +6.57%. The United States Natural Gas Fund ETF (UNG) is at $21.27, up $1.22 or +6.08%.

‘Notable Drop-Off in Domestic Production’

Natural Gas Intelligence (NGI) is reporting that the early gains for natural gas futures coincided with updated pipeline flow data showing a notable drop-off in domestic production, according to EBW Analytics Group senior analyst Eli Rubin.

“Dry gas production pushed notably higher over the past three weeks, but pipeline flow monitors are oscillating wildly in estimations for early April flows,” Rubin said. “While any drop could vanish with late-cycle revisions, an early-cycle loss in nominations this morning – down almost 1.5 Bcf/d day/day – is contributing to this morning’s gains.”

NGI also reported that if it lasts, this “unexpected blip” in supply volumes could spark a rally above the $6 level, according to Rubin.

Short-Term Weather Outlook

According to NatGasWeather, “We continue to view bulls as being in control since they’ve bought every dip the past 3-weeks and are again at it by testing $6 this morning.

After relatively light demand the next 3-days, a modest bump in national demand is expected Friday-Sunday as a strong spring storm exits the Midwest and advances across the Mississippi Valley and East with heavy showers, severe thunderstorms and slightly cool highs of 40s to 60s.

A return to light national demand is expected next week as a warm ridge sets up over the eastern ½ of the US with perfect highs of 60s to 80s.”

Daily Forecast

Technically, now that the market has crossed last week’s high at $5.832 in convincing fashion, the daily chart shows there is no resistance until the October 8, 2021 main top at $6.457. Furthermore, bullish traders don’t have to worry about the start of a downtrend unless the main bottom at $5.270 is violated.

Although demand is expected to be on the bearish side over the next 15 days, prices are likely to continue to be underpinned by worries over storage deficits, seasonal buying in anticipation of a hot summer, strong inflation and geopolitical turmoil in Ukraine.