Natural Gas News: Traders Bracing for Volatility with Cooler Temps Forecasted

Natural Gas Futures Rise Amid Storage Decline and Production Cuts

Natural gas futures surged higher on Friday, edging closer to the key 200-day moving average at $2.769. This upward movement is fueled by reduced storage levels, lower production, and anticipated demand spikes due to localized heatwaves across the United States.

At 12:53 GMT, natural gas futures are trading $2.030, up $0.107 or +5.56%.

Weekly Inventory Report

June natural gas prices saw significant gains on Thursday, reaching a three-month high. The rally was supported by the U.S. Energy Information Administration (EIA) report, which showed a smaller-than-expected increase in natural gas inventories. For the week ending May 10, inventories rose by 70 billion cubic feet (bcf), falling short of the forecasted 76 bcf and the five-year average increase of 90 bcf. Despite this, total natural gas inventories were still up 17.5% year-on-year and 30.8% above the five-year seasonal average.

Production and Demand Trends

The Lower-48 states’ dry gas production on Thursday was reported at 98.3 bcf per day, marking a 2.1% year-on-year decline, according to Bloomberg New Energy Finance (BNEF). Concurrently, gas demand in these states stood at 64.4 bcf per day, a 2.7% decrease from the previous year. Liquefied Natural Gas (LNG) exports from U.S. terminals were at 13.2 bcf per day, up 4.0% week-on-week, indicating robust international demand.

Impact of Weather and Operational Shifts

Natural gas prices experienced some volatility due to weather forecast adjustments. The Commodity Weather Group’s latest predictions suggest cooler temperatures for the eastern U.S., including Texas, from May 21-25, which could reduce demand for air conditioning and thus natural gas. Additionally, the partial reopening of Freeport LNG’s production unit in Texas, which was shut down due to cold weather damage, has created fluctuations in supply expectations. Full operations at Freeport are not expected until late May, which temporarily limits export capacity and contributes to higher domestic inventories.

Electricity Output and Demand

Increased electricity production has provided some support for natural gas prices. The Edison Electric Institute reported that U.S. electricity output for the week ending May 11 rose by 2.08% year-on-year to 74,842 gigawatt hours (GWh). Cumulative electricity output over the past year showed a marginal increase, underscoring steady utility demand for natural gas.

Market Forecast

Given the current market conditions—reduced storage increases, lower production, and strong LNG exports—natural gas futures are likely to maintain their upward trend in the short term. However, potential cooler weather could temper this bullish outlook by reducing immediate demand for natural gas. Overall, traders should remain watchful of inventory reports and weather forecasts to manage this volatile market.

Technical Analysis

Natural gas futures continue to edge higher on Friday despite calls for cooler temperatures later in the month. The price action and chart pattern suggest that momentum may drive the market into the 200-day moving average at $2.769 before short-sellers re-emerge.

On the downside, the market continues to remain well-supported by the 50-day moving average at $2.176 so if there is a profit-taking-led-selloff, we don’t think it will be strong enough to change the intermediate trend to down.