Natural Gas News: Will Decreasing Production Underpin Prices This Week?

Natural Gas Market Weekly Recap and Outlook

The U.S. natural gas market last week displayed a surprising resilience, registering a modest uptick in futures despite a complex blend of bearish factors. This gain was chiefly influenced by the projection of continued low output in the coming weeks, as gas rig counts persistently decline.

Last week, US Natural Gas futures settled at $1.785, up $0.022 or +1.25%.

Supply Factors

The supply side reveals a notable contraction in natural gas production. According to LSEG, the average gas output in the Lower 48 states declined to 99.1 billion cubic feet per day (bcfd) in April from 100.8 bcfd in March. This reduction is partly attributed to a significant decrease in active gas rigs, as highlighted by the dwindling numbers in the Haynesville shale region of Louisiana, Texas, and Arkansas. Baker Hughes reported a drop of two rigs in Haynesville last week alone, marking the lowest count since August 2020. In addition, maintenance activities on key pipelines, such as Kinder Morgan’s in the Permian Basin, have led to unusual pricing phenomena, with gas prices turning negative, reflecting an oversupply in specific locales despite a tighter overall market.

Demand Trends

Demand-side elements are equally intricate. Weather forecasts from NatGasWeather indicate a shift from cooler conditions, which typically drive higher gas demand, to warmer weather, potentially reducing heating-related gas consumption. Furthermore, the recent power outages in the Northeast and the expected impact of a solar eclipse on solar generation could temporarily lessen the demand for natural gas. Despite these factors, LSEG anticipates a decline in gas demand, projecting a fall from 104.3 bcfd to 102.5 bcfd next week, with a further decrease to 97.4 bcfd in the subsequent week.

Market Indicators and Economic Context

In the wider energy market, oil trends are influencing natural gas trends. U.S. oil futures surged to a five-month high, which, coupled with Shell’s reported divergence in LNG and oil trading outcomes, underscores the interconnected nature of these energy markets. Such trends can indirectly impact natural gas prices. Additionally, the global energy scene remains a factor, with unchanged Asian LNG spot prices and an “extremely active” forecast for the 2024 Atlantic hurricane season by Colorado State University, suggesting potential volatility ahead.

Short-Term Market Forecast

Balancing these supply and demand factors with broader market signals, the short-term outlook for U.S. natural gas prices leans bearish. The combined effect of warmer weather, adequate supply despite decreased production, and global energy trends indicate a potential downward movement in prices. However, given the market’s volatility and sensitivity to external factors like weather and global energy dynamics, this forecast necessitates continuous monitoring for rapid shifts. Traders should remain alert to emerging trends that could influence the market trend in the coming weeks.