Natural Gas Forecast: Worries Over Rising Production, Low Demand Capping Gains

Natural Gas Highlights

• Natural gas prices rose due to wildfires in Canada
• US gas production to reach all-time high in 2023
• Warmer weather may boost US gas demand

Natural Gas Overview

Natural gas is edging lower on Wednesday after touching a fresh one-week high the previous session. The price action suggests an overnight shift in the weather forecasts or increased production could be behind the move. Additionally, perhaps there was some progress in the containment of the wildfires in Canada.

At 11:24 GMT, Natural Gas is trading $2.123, down $0.029 or -1.35%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $6.63, up $0.10 or +1.53%.

Natural Gas Futures Reach One-Week High

Natural gas futures in the United States rose by 1% on Tuesday, reaching a one-week peak, due to a decrease in daily US output and Canadian gas exports caused by wildfires in Alberta, Canada. Despite predictions of lower demand and milder weather, prices continued to increase.

Canada-US Gas Exports Fall

Refinitiv reported that gas exports from Canada to the US fell to a preliminary 6.7 billion cubic feet per day on Tuesday, matching the 25-month low seen on Sunday, down from an average of 8.5 billion cubic feet per day at the start of the year. Meanwhile, Refinitiv predicts that the demand for natural gas in the US, including exports, will rise with warmer weather from 90.2 billion cubic feet per day this week to 90.5 billion cubic feet per day next week.

EIA: Gas Production to Hit High in 2023

The US Energy Information Administration (EIA) has released its Short Term Energy Outlook, predicting that gas production in the United States will reach an all-time high in 2023 while demand declines. The EIA also forecasts a reduction in US power consumption in 2023 due to slower economic growth and milder weather conditions.

Refinitiv:  Daily Output Steady

The average natural gas production in the Lower 48 states of the US remained at 101.4 billion cubic feet per day in May, matching the previous monthly record set in April, according to Refinitiv. However, preliminary data suggests that daily output may decrease by 1.6 billion cubic feet per day, reaching a preliminary five-week low of 100.1 billion cubic feet per day on Tuesday, although preliminary data is subject to revision.

US LNG Export Flows Drop

Gas flows to the seven major LNG export plants in the United States have decreased to an average of 13.0 billion cubic feet per day in May, compared to the record of 14.0 billion cubic feet per day set in April, due to reductions at Cameron LNG’s terminal in Louisiana and Cheniere Energy Inc’s facilities at Sabine Pass in Louisiana and Corpus Christi in Texas.

Warmer Weather Expected to Continue

Finally, meteorologists expect warmer-than-usual weather to continue until May 23. They also predict fewer Total Degree Days than typical for this time of year. Total Degree Days measure the number of degrees a day’s average temperature is above or below 65 degrees Fahrenheit (18 degrees Celsius) and are used to estimate demand to cool or heat homes and businesses.

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.