Natural Gas News: Pressured Last Week by Lower Demand Forecasts

Natural Gas Futures Fall 5% on Forecasts for Lower Demand and Oversupply

U.S. Natural Gas Futures Drop

U.S. natural gas futures dropped by about 5% on Friday, hitting a one-week low due to forecasts for lower demand in the coming weeks and an ongoing oversupply. The decline comes despite an anticipated demand increase next week and a heat wave expected to boost usage over the Memorial Day weekend.

In Monday’s limited trade, Natural Gas futures are trading $2.534, up $0.014 or +0.56%.

Oversupply and Production Increases

Analysts reported that gas stockpiles are approximately 27% above normal levels for this time of year. This oversupply pressured prices, with front-month gas futures for June delivery on the New York Mercantile Exchange falling 13.7 cents, or 5.2%, to settle at $2.520 per million British thermal units, the lowest close since May 16. For the week, the front-month futures fell about 4%, reversing some of the 63% gains seen over the previous three weeks.

Texas Power Prices Surge Amid Heat Wave

In the spot market, Texas power prices soared on Friday due to record-breaking electric demand ahead of the long weekend, driven by a heat wave. Homes and businesses cranked up air conditioners, increasing electricity consumption and highlighting the volatility in energy demand.

Supply and Demand Factors

Financial firm LSEG noted that gas output in the Lower 48 U.S. states averaged 97.5 billion cubic feet per day (bcfd) so far in May, down from 98.2 bcfd in April and significantly below the monthly record of 105.5 bcfd in December 2023. Despite this monthly decline, daily output has increased by about 1.5 bcfd since hitting a 15-week low on May 1. This rise in production is attributed to the recent surge in futures prices, encouraging drillers to ramp up output.

Production and Drilling Activity

Overall, U.S. gas production remains down about 8% in 2024, as energy firms like EQT and Chesapeake Energy delayed well completions and reduced drilling activities after prices hit 3-1/2-year lows earlier this year. Although U.S. energy firms cut the number of active gas rigs to 99 this week, the lowest since October 2021, the increase in daily output indicates a response to higher prices.

Weather and LNG Exports

Meteorologists project warmer-than-normal weather across the Lower 48 states from May 24-28 and June 3-8, with near-normal temperatures in between. LSEG forecasts gas demand, including exports, to remain near 92.7 bcfd this week and next before easing to 92.2 bcfd in two weeks. Gas flows to the seven major U.S. LNG export plants rose from an average of 11.9 bcfd in April to 12.7 bcfd so far in May, although this is still below the monthly record of 14.7 bcfd in December due to ongoing maintenance at several facilities.

Market Forecast

Given the current oversupply and forecasts for lower demand, the outlook for U.S. natural gas futures remains bearish in the short term. Prices may continue to face downward pressure unless there are significant shifts in production or unexpected spikes in demand.

Technical Analysis

Natural gas ended Friday’s session on a weak note, making $2.924 a new main top. Although the swing chart see’s the current sell-off as a correction, the market is trading on the weakside of the 200-day moving average at $2.749, making it resistance. The nearest support is the 50-day moving average at $2.227. It is controlling the intermediate trend.

The short-term range is $1.909 to $2.924. The market is within striking distance of its 50% level or pivot at $2.416. Watch for a technical bounce on the first test of this level, but be prepared for a steep break if it fails to hold.