Natural Gas News: Will Heatwave Propel Prices Above $3.00?

Natural Gas Futures Eye $3 on Hot Weather Forecasts

Natural gas futures surged toward the psychological $3 mark late last week, buoyed by weather forecasts predicting late June to be one of the hottest on record. Despite a bearish government inventory report, price bulls pushed natural gas futures higher, ending a two-week losing streak.

Last week, Natural Gas futures settled at $2.918, up $0.331 or +12.79%.

Weather Forecasts

NatGasWeather reported that while strong cooling demand in western regions was expected to ease into the weekend, national demand is anticipated to rebound in the third week of June due to widespread hot weather. If a hotter-than-normal pattern persists, surpluses could decrease to around 450 Bcf. The National Weather Service (NWS) forecast indicated temperatures ranging from the 50s to 90s across various regions over the weekend, with persistent heat in the Southwest and Texas.

EIA Weekly Storage Report

The latest U.S. Energy Information Administration (EIA) inventory report revealed that utilities injected 98 Bcf into storage for the week ended May 31, slightly below the five-year average increase of 103 Bcf. This brought Lower 48 inventories to 2,893 Bcf, with a surplus of 581 Bcf, or 25% above the historical average. Despite the historical bullish trend, the recent report marked the second consecutive bearish miss, indicating a week-over-week market loosening of 2.5 Bcf/d, though tighter by 0.8 Bcf/d compared to the five-year average.

U.S. Gas Production

U.S. dry gas production has been trending lower since peaking at the end of 2023, averaging 102.6 Bcf/d in March 2024. Inflation-adjusted futures prices fell to an average of $1.75 per million British thermal units in March 2024, the lowest in over three decades. Consequently, the number of active rigs has decreased significantly, with only 101 rigs in operation by May 2024. Without a price rebound, production is expected to remain flat, potentially rebalancing the market by winter 2024/25.

Demand and Price Volatility

Liquefied natural gas (LNG) feed gas volumes have declined, partly due to maintenance at Cheniere Energy Inc.’s Sabine Pass LNG export terminal. However, Freeport LNG has shown signs of recovery. Regional price movements varied, with California prices falling and West Texas prices rising for the fourth straight session, driven by summer heat and reduced pipeline maintenance.

Market Forecast

Given the upcoming hot weather and its impact on demand, the natural gas market outlook remains bullish. Production constraints and strong summer combustion demand are likely to tighten supplies, supporting higher prices in the near term. Technically, the focus for bullish traders should be the potential resistance zone at $2.918 to $3.102.