Natural Gas Forecast: Prices Dip Ahead of EIA Storage Report

Highlights

• Natural gas prices decline before storage report release.
• Inventories expected to increase more than usual.
• Weak demand and high production contribute to inventory buildup.

Overview

U.S. natural gas prices are lower on Thursday, shortly before the release of the latest weekly government storage report.

At 11:15 GMT, Natural Gas is trading $2.1155, down $0.0025 or -0.12%. On Wednesday, the United States Natural Gas Fund ETF (UNG) settled at $6.20, down $0.13 or -2.05%.

EIA Expects Larger-Than-Usual Inventory Build

The Energy Information Administration (EIA) weekly storage report, due to be released at 14:30 GMT, is expected to show inventories increasing by a larger amount than usual. The consensus estimate is for a build of 106 Bcf. Weak demand in a slow economy is unable to keep up with still-high production rates, contributing to the increase in inventories.

Natural Gas Drops Despite Demand Outlook

U.S. natural gas futures fell about 3% on Wednesday, despite forecasts for warmer weather in mid-June that would increase air conditioning demand. The decline in prices can be attributed to various factors, including record U.S. output, a decrease in gas flows to LNG export plants due to maintenance, and an increase in exports from Canada following production disruptions caused by wildfires earlier in the month.

Record Gas Output and Increased Canadian Imports Boost Supply

Data from Refinitiv indicates that average gas output in the U.S. Lower 48 states has risen to 101.7 billion cubic feet per day (bcfd) in May, surpassing the previous monthly record of 101.4 bcfd in April. Additionally, the amount of gas flowing from Canada to the U.S. is expected to reach a 10-week high of 8.54 bcfd, compared to 7.81 bcfd the previous day. However, Canadian exports experienced a drop in May due to wildfires in Alberta, causing energy firms to reduce oil and gas production. The situation improved later in the month, with exports rising to 8.12 bcfd after firefighters made progress in controlling the blazes. On average, about 8% of the gas consumed in or exported from the U.S. comes from Canada.

Seasonal Demand Rise Expected Amid Lower Gas Flows and Increased Inventories

Meteorologists project that the weather in the Lower 48 states will remain mostly normal from May 31 to June 10, but will turn cooler and more seasonal from June 11 to 15. Refinitiv forecasts a rise in U.S. gas demand, including exports, from 89.5 bcfd this week to 92.7 bcfd next week, reflecting the seasonal increase in demand due to the warmer weather. However, updated weather forecasts calling for cooler U.S. temperatures have led to a decrease in natural gas demand from electricity providers for air conditioning.

Maintenance work at several plants has led to a decline in gas flows to the seven major U.S. LNG export plants, dropping from a record 14.0 bcfd in April to an average of 13.0 bcfd in May. It’s important to note that the record flows in April surpassed the plants’ total capacity, as some gas is utilized to power equipment in LNG production.

Looking ahead, the anticipated release of U.S. government natural gas data on Thursday is expected to reveal a larger-than-usual increase in inventories. The rise in inventories can be attributed to weak demand in a sluggish economy, which is unable to keep pace with the persistently high production rates.

Technical Analysis

Natural gas is currently trading on the bearish side of the PIVOT at $2.215, putting it in a weak position. This level is also resistance.

A sustained move under $2.215 puts the market in the hands of strong sellers. If this continues to generate enough downside pressure, we could see an eventual test of $1.811 (S1).

Overtaking $2.215 will signal the return of buyers. If this move is able to generate enough upside momentum then look for a near-term rally into $2.515 (R1).

For a look at all of today’s economic events, check out our economic calendar.