Natural Gas Forecast: Underpinned by Record-Breaking Power Usage Expected in Texas

Highlights

• Limited movement in natural gas prices on low trading volume due to a US bank holiday.
• Gas prices surged 4% to a three-month high on Friday due to lower output and anticipated demand in Texas.
• Prices in Europe experienced significant volatility, plunging after a sharp increase.

Overview

Natural gas prices showed limited movement on Monday with low trading volume due to a bank holiday in the United States. The subdued activity suggests that the weekend weather turned out to be milder than expected.

However, on Friday, prices surged by 4%, reaching a three-month high. This increase was driven by a drop in gas output and forecasts of increased demand, particularly in Texas, where a heatwave was anticipated. Texas, heavily reliant on gas for power generation, was projected to experience record-breaking power usage as residents and businesses sought relief from the summer heat.

At 11:30 GMT, Natural Gas is trading $2.553, up $0.0075 or +0.29%.

US Futures Post Fifth Straight Day of Gains

Power utilities in Texas and the Gulf Coast were also focused on restoring electricity to over 664,000 customers affected by severe storms in the region. Concurrently, gas futures for July delivery on the New York Mercantile Exchange continued their upward trend, settling at $2.632 per million British thermal units (mmBtu). This marked the fifth consecutive day of gains and the largest weekly increase since early March.

In Europe, gas prices at the Dutch Title Transfer Facility (TTF) benchmark remained volatile, plummeting around 22% after a significant rise in the previous week.

Refinitiv:  Gas Output Declines

Data provider Refinitiv reported a decline in gas output in the U.S. Lower 48 states to 101.9 billion cubic feet per day (bcfd) in June, down from May’s record high of 102.5 bcfd. Gas exports from Canada were expected to increase to 8.3 bcfd, driven by subsiding wildfires. On average, Canadian gas exports reached 7.8 bcfd in June, 7.4 bcfd in May, and 8.3 bcfd in 2023.

Weather Driven Demand Expected

Meteorologists predicted near-normal weather from June 16-22, followed by hotter-than-normal conditions from June 23 to July 1. Refinitiv projected rising gas demand, including exports, from 93.2 bcfd to 96.0 bcfd next week and 101.8 bcfd in two weeks. Gas flows to major U.S. LNG export plants saw a decline in June due to maintenance, averaging 11.6 bcfd compared to 13.0 bcfd in May.

Short-Term Outlook:  Bullish Tone

Overall, natural gas prices experienced subdued trading but had previously surged due to lower output, anticipated demand, and extreme weather conditions.

Technical Analysis

Natural gas is inching lower on Monday after touching its highest level since May 22 the previous session. Last week’s rally was een strong enough to take out $2.465 (R1), turing this level into support.

A sustained move over $2.465 will indicate the buying is getting stronger. If this continues to generate enough upside momentum then look for a possible near-term surge into $2.894 (R2).

A failure to hold $2.465 will dampen some of the upside momentum, but the uptrend will remain intact unless the $2.190 (PIVOT) fails as support.

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