Natural Gas Forecast: Futures Slide to Two-Week Low Amid Global Price Collapse

Highlights

• Global gas price collapse impacts U.S. natural gas futures.
• Record-high U.S. gas output and Canadian exports contribute to price decline.
• Milder weather and lower demand dampen outlook for natural gas futures.

Overview

U.S. natural gas futures are down on Friday, reaching a two-week low, due to several factors affecting the market. One significant factor is the collapse of global gas prices, which has put downward pressure on natural gas futures. Additionally, the United States has seen record-high levels of natural gas output, further contributing to the decline in prices. Increased exports from Canada have also played a role in the market dynamics.

As of the latest update, natural gas is trading at $2.2245, reflecting a decrease of 1.83%. The front-month price has declined by approximately 14% for the week, offsetting the previous week’s gain. In the spot market, mild weather conditions and sufficient hydropower in the U.S. West have pushed next-day gas prices at the PG&E Citygate in Northern California to their lowest level since August 2020.

Upcoming Milder Weather Dampens Natural Gas Outlook

Forecasts for milder weather and lower-than-expected demand in the upcoming week, which includes the U.S. Memorial Day holiday, have further dampened the outlook for natural gas futures. Although the June ’23 futures contract has expired, market players positioning themselves ahead of the long Memorial Day weekend, the weather patterns continue to be bearish through the first week of June. Most parts of the U.S. are expected to enjoy pleasant temperatures, resulting in anticipated light to very light national demand for natural gas.

Weather Transition to Impact Gas Demand

Meteorologists predict a transition to near-normal weather conditions in the Lower 48 states, with rising temperatures over the next two weeks. This forecast is expected to decrease U.S. gas demand, including exports, for the upcoming week, but demand is projected to rise in the following weeks as the weather becomes seasonally warmer.

Demand Surges Despite Wind Power Shortage

Interestingly, despite the recent lack of wind power, power generators have increased their reliance on natural gas for electricity production, leading to reduced gas available for storage. Wind power accounted for only 7% of total U.S. power generation this week, while natural gas accounted for 41% on average, highlighting the increased consumption of natural gas.

Record Gas Output Surpasses April’s Peak

Gas output in the U.S. Lower 48 states has reached a new monthly record in May, surpassing the previous record set in April. Additionally, gas exports from Canada to the U.S. have remained stable, following a period of wildfires in Alberta, Canada.

Energy Security Outweighs Gas Price Collapse for U.S. LNG Exports

While concerns have been raised about the impact of the gas price collapse in Europe and Asia on the U.S. market, most analysts believe that energy security concerns will maintain global gas prices at a level that supports U.S. LNG exports. Despite speculation about potential cancellations of U.S. LNG cargoes during the summer, the prevailing view is that energy security concerns will outweigh the price collapse and sustain U.S. LNG exports in 2023.

Technical Analysis

Natural gas is trading on the weakside of $2.432 (R1), making it new resistance. A sustained move under $2.432 (R1) will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into $2.168 (Pivot), followed by $1.962 (S1).

Overcoming this level will indicate the return of buyers with $2.638 (R2) the next target.

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