Natural Gas News: Can High Summer Demand Offset Oversupply Concerns?

Natural Gas Market Recap and Forecast

Last week, U.S. natural gas prices fell sharply, impacted by increased production, fluctuating demand forecasts, and substantial inventory levels. At times, the selling pressure was relentless as traders continued to assess the potential impacts of shifts in weather and production.

During the week-ending May 31, Natural Gas settled at $2.587, down $0.168 or -6.10%.

Supply Increases and Oversupply Concerns

U.S. natural gas production ramped up as summer approached, causing downward pressure on prices. Analysts at Tudor Pickering Holt & Co. highlighted that producers were gearing up for higher summer demand, contributing to market concerns over increased supply​​.

The U.S. Energy Information Administration (EIA) reported an 84 billion cubic feet (Bcf) increase in inventories for the week ending May 24, surpassing the consensus estimate of 77 Bcf​​. Total stocks stood at 2795 Bcf, significantly above the five-year average, further exacerbating the oversupply issue​​.

Weather Impact on Demand

Weather patterns played a critical role in shaping demand expectations. NatGasWeather predicted very warm to hot conditions in the southern U.S. and California, with temperatures ranging from the mid-80s to 100s in desert areas​​. However, the northern U.S. experienced milder temperatures, which tempered overall demand​​. Despite these conditions, national demand for natural gas was projected to remain robust due to the high temperatures in key regions.

Market Volatility and Price Movements

The natural gas market saw increased daily volatility, with price movements expanding to a 10-20 cent range per day, compared to a more stable 10-cent range in previous months​​. This heightened volatility added uncertainty to market direction. At times, natural gas futures rallied due to higher demand forecasts and increased LNG export activity, however, these gains were short-lived as trader focus returned to uncertain weather and production increases

Storage and Production Trends

Natural gas production in the Lower 48 states averaged 97.7 billion cubic feet per day (bcfd) in May, slightly down from April’s 98.2 bcfd. Despite the monthly decline, daily output increased by 1.5 bcfd since early May​​. The rise in futures prices encouraged some drillers to ramp up production, though overall production remained down about 8% year-over-year due to delayed well completions and reduced drilling activities​​.

LNG Export Activity

LNG export activity increased, with gas flows to export plants rising from 11.9 bcfd in April to 12.7 bcfd in May, largely due to the resumption of operations at Freeport LNG’s plant in Texas​​. However, exports remained below the December 2023 record of 14.7 bcfd due to ongoing maintenance at various facilities​​.

Market Forecast

Given the current oversupply and forecasts for lower demand, the short-term outlook for U.S. natural gas prices remains bearish. The significant inventory levels and rising production are likely to continue putting downward pressure on prices. Traders should prepare for potential further declines unless there are unexpected spikes in demand or significant disruptions in supply. Weather patterns and LNG export activities will be critical factors to monitor in the coming weeks.