Natural Gas Forecast: Surge in U.S. Gas Production, Canadian Exports Weigh

Highlights

• Natural gas prices drop due to increased production and Canadian exports.
• Wind power decline leads to higher gas consumption for electricity generation.
• Short-term outlook for natural gas is bearish with normal weather conditions and decreased demand.

Overview

Natural gas fell 3%, reaching a one-week low on Tuesday. This decline was attributed to two key factors: the expected surge in U.S. gas production and increased gas exports from Canada as some Alberta producers resumed operations after wildfires.

On Tuesday, Natural Gas settled at $2.352. The United States Natural Gas Fund ETF (UNG) finished at $6.87, down $0.13 or -1.86%.

Supply Dynamics

Gas output in the U.S. Lower 48 states reached 101.5 billion cubic feet per day (bcfd) so far in May, surpassing April’s record of 101.4 bcfd. Additionally, gas exports from Canada to the United States were expected to rise to 8.2 bcfd, a near three-week high.

Demand Dynamics

Despite predictions of slightly increased gas demand in the next two weeks, particularly due to low wind power generation, gas futures still experienced a decline. The proportion of U.S. power generated by wind dropped to 7% compared to the previous week’s high of 17%. This decline in wind power led to an increase in gas consumption for electricity generation, particularly in Texas.

Short-Term Outlook

In the short term, the outlook for natural gas is bearish. The decrease in wind power generation has resulted in higher gas usage for electricity production, reducing the available supply for storage. Meteorologists project mostly normal weather conditions in the Lower 48 states, except for some colder-than-normal days from May 24-28. Refinitiv forecasts a slight decrease in U.S. gas demand, including exports, from 90.4 bcfd to 89.8 bcfd next week, with revised higher forecasts compared to the previous day’s outlook. These factors contribute to the bearish sentiment in the market.

Technical Analysis

Natural gas is trading on the weakside of $2.432 (R1), making it new resistance. Overcoming this level will indicate the return of buyers with $2.638 (R2) the next target.

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)

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