Natural Gas News: High Supply Offsetting Strong Heat-Driven Demand

Natural Gas Futures Struggle Despite Strong Heat; Cash Prices Soar

Natural gas futures experienced a decline on Wednesday, driven by heightened supply concerns and market repositioning ahead of the prompt month expiration. Despite high demand forecasts due to intense heat across much of the United States, futures have not rallied as expected.

Weather Impact on Demand

From June 26 to July 2, strong high pressure is expected to dominate the southern two-thirds of the US, bringing temperatures in the 90s and 100s. The northern third will see milder weather with highs in the 70s and 80s. This weather pattern is anticipated to result in high to very high natural gas demand for air conditioning.

Wind Energy and Regional Price Variations

While wind energy generation has been low recently, it is forecasted to increase significantly over the next week. This rise in wind energy production could partially offset the high temperatures, particularly in Texas, where temperatures are expected to hit the mid-90s to 100s. Despite these conditions, natural gas prices in Texas have dipped into negative territory. For instance, at the Waha hub, prices fell to negative $1 per million British thermal units (MMBtu) on Monday.

Supply and Infrastructure Constraints

The unusual negative pricing in Texas is attributed to an oversupply situation, exacerbated by pipeline maintenance activities by Kinder Morgan on the Permian Highway gas pipe. This maintenance has temporarily restricted gas capacity, leading to trapped natural gas and oversupply. Such incidents are not uncommon during pipeline shutdowns, as seen earlier this year with the Natural Gas Pipeline of America.

Market Implications and Consumer Impact

This is the 18th instance this year of negative natural gas prices in Texas. These price drops are often related to infrastructure issues, which temporarily increase local supply. However, this does not translate to lower electricity bills for consumers. In fact, past heatwaves have driven Texas spot electricity prices up by as much as 20,000%. The Energy Information Administration reports that the West South Central region, including Texas, is expected to face the highest electricity bills in the country this year.

Market Forecast

Given the current market situation, the outlook for natural gas futures remains bearish. High supply levels, compounded by infrastructure maintenance, continue to suppress prices despite strong demand driven by extreme heat. Traders should remain cautious, monitoring supply chain developments and weather forecasts closely.

Technical Analysis

The natural gas futures chart shows a bearish trend. Prices have recently broken below the 200-day moving average at $3.025 and are approaching the 50-day moving average at  $2.730. The overall price action and moving average crossover suggest further downside potential in the near term. Trader continue to remain in “Sell the Rally” mode.