Natural Gas Forecast: Optimistic Speculators Betting on Reduced Gas Production

Natural Gas Highlights

• Energy companies reduce gas drilling rigs, impacting the market
• Gas Prices Rally Amidst Declining Drilling Rigs and Optimistic Traders
• Speculation of production reduction and bullish sentiment drive prices up

Natural Gas Overview

Natural gas prices are drifting lower on Tuesday after reaching a two-week high earlier in the session. The current three day rally is being influenced by worries about a potential decrease in future gas production. This concern arises from recent data indicating that energy companies have reduced the number of drilling rigs for extracting gas.

At 08:55 GMT, Natural Gas is trading $2.293, up $0.011 or +0.48%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $6.94, up $0.30 or +4.44%.

Gas Rig Count Plummets, Production Concerns Rise

Last Friday, Baker Hughes Co, an energy services firm, reported that the gas rig count, which provides insights into future gas production, dropped by 16 to 141 during the week ending May 12. This is the lowest count since April 2022, and the decline in gas rigs is the largest we’ve seen since February 2016.

The recent gas drilling report is driving fresh upside momentum, as it revealed that key basins like Eagle Ford, Marcellus, and Haynesville have experienced a significant decrease in gas drilling rigs over the past year.

The lack of long-term drilling plans has contributed to the current price situation. Moreover, optimistic traders are speculating on a reduction in production later this year, which further supports the bullish sentiment in the market.

Low Gas Prices Amidst Supply Abundance

Gas prices have stayed low for the past two years. This is due to decreased demand caused by warmer weather. Additionally, there is an abundance of supply available.

Record Gas Production Continues, Demand Decline Expected

According to Refinitiv, the average daily gas production in the Lower 48 states of the United States has been 101.4 billion cubic feet per day (bcfd) during May, which matches the previous monthly record high set in April.

Meteorologists predict that the weather in the Lower 48 states will transition from warmer-than-normal conditions between May 12 and 17 to near-normal conditions from May 18 to 27.

Refinitiv anticipates a decline in U.S. gas demand, including exports, from 91.7 billion cubic feet per day (bcfd) this week to 89.0 bcfd next week.

Technical Analysis

Natural gas closed at a two-week high and on the bullish side of the daily pivot at $2.1680, putting the market in a position to exend the rally on Tuesday. If the move continues to generate enough upside momentum then look for a possible near-term test of $2.432 (R1). This is a potential triggerpoint for an acceleration to the upside with $2.638 (R2) the next target.

Look for the downside bias to resume on a sustained move under $2.168 with $1.962 (S1) the primary target.