Natural Gas News: Futures Decline as Production and Weather Concerns Persist

Weather and Supply Pressures

Natural gas futures fell for the fifth time in six sessions on Thursday. Despite excessive heat across much of the Lower 48 states, the market focused on strong supplies and tropical systems in the Gulf of Mexico. The excessive heat had already been factored into market expectations, leading traders to shift their attention to developing tropical storms and returning production levels.

Heatwave Impact

The ongoing heatwave, which has led to sweltering temperatures across large parts of the U.S., has been a significant factor. From June 21-26, high pressure is expected to dominate the eastern U.S., bringing temperatures in the upper 80s to mid-90s. Meanwhile, Texas will experience cooler temperatures due to heavy rains from a tropical system in the Gulf of Mexico, potentially reducing overall demand.

Production and Demand Factors

Increased natural gas production and higher flow capacity have also contributed to the downward pressure on prices. Despite the current high temperatures, these factors are mitigating the potential for a significant price increase. Natural gas-fired electricity generation has risen year-to-date compared to the same period last year, driven by higher power demand and increased usage by data centers. The EIA projects natural gas will provide around 42% of the nation’s electricity this year.

Savvy Traders vs. Heatwave Hype

Professional traders recognize that summer heatwaves are typical and remain cautious unless a prolonged heat dome significantly drives prices higher. In contrast, amateur traders might overreact to high temperatures, viewing them as bullish signals. However, experienced traders understand that unless the heat persists, its impact on prices is limited.

Impact of Cooling Rains, Potential Disruptions

Tropical storms and hurricanes typically have a bearish effect on natural gas prices due to demand destruction from cooling rains and potential disruptions to LNG plant operations. The uncertainty surrounding the tropical storm in the Gulf of Mexico is contributing to the bearish outlook.

Market Forecast

Given the current conditions of strong production, increased flow capacity, and mixed weather demand, the market is likely to see a short-term bearish outlook. The tropical storm’s cooling effects and potential disruptions may provide temporary support, but overall sentiment remains cautious. Traders should closely monitor the storm’s progression and its impact on supply and demand factors.

Technical Analysis

Natural gas prices are down on Friday but are trying to recover from earlier losses. Prices dropped to $2.672 at the opening, their lowest since June 5.

The nearest support is a short-term pivot at $2.652, with intermediate support at the 50-day moving average of $2.598.

On the upside, the key resistance level is the 200-day moving average at $2.927.