Natural Gas Forecast: Prices Rally on Bullish Storage Report, But Lose Momentum

Highlights

• Natural gas prices initially rose due to bullish storage report
• Reduced production and maintenance activities affected gas market
• Global LNG market oversupply and weak demand may impact US prices

Overview

Natural gas prices experienced upward movement initially in the trading session on Thursday. This was supported by a moderately bullish storage report from the government, indicating lighter production.

However, due to the absence of significant new demand drivers, the rally eventually lost momentum and settled lower for a second consecutive session. Cash prices also traded within a narrow range, with NGI’s Spot Gas National Average increasing by 2.5 cents to $1.685.

Natural Gas Production Hovers Below 100 Bcf/d

Natural gas production hovered just below 100 billion cubic feet per day (Bcf/d) on Thursday. This was slightly lower than recent highs of around 102 Bcf/d. Maintenance activities in the Northeast and the Permian Basin restricted output, although these events are expected to be temporary. Despite favorable weather conditions, the impact of reduced production offset the influence on cash markets.

Extended Mild Weather Forecast May Impact Gas Prices

The National Weather Service (NWS) forecasts mild weather for the Lower 48 states for the next two weeks. Similar conditions may extend into late May and beyond, according to NWS data.

This forecast suggests robust storage injections in the coming weeks, which could revive the relatively inactive bearish sentiment. Additionally, the demand for U.S. liquefied natural gas (LNG) exports declined during the spring due to mild weather and ample LNG supplies in Europe and Asia.

The oversupplied global LNG market, limited buying interests overseas, and weak macroeconomic conditions worldwide are keeping global gas prices low, potentially impacting U.S. prices in the near future, as stated by Rystad Energy analyst Masanori Odaka.

Soft Storage Build, Strong Power Burns

The Energy Information Administration (EIA) reported a seasonally soft storage build of 78 Bcf for the week ending May 5. This was higher than the 76 Bcf build during the same period last year. However, it was below the five-year average of 87 Bcf injection.

Predictions from major polls converged around a build in the mid- to high-70s Bcf range, with NGI modeling a 79 Bcf injection. Although production dipped slightly during the covered period due to maintenance events, power burns remained strong due to low prices.

Wood Mackenzie analyst Eric McGuire highlighted the increased use of hydrogen power generation in May as melting snow in the West led to higher demand. However, renewable energy sources, such as solar and wind, experienced month-over-month declines, resulting in natural gas acting as the primary fuel for power generation.

Technical Analysis

Natural gas is hovering just below its pivot at $2.168. This price is controlling the near-term direction of the market.

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

An upside bias will develop on a sustained move over $2.168 with $2.432 (R1) the next likely target.