Natural Gas News: Will High Production Offset Rising Temperatures This Summer?

Futures and Cash Prices Decline

Natural gas futures and cash prices dropped sharply last week, due to strong production levels and easing demand, driven by a cooldown in the country’s midsection and business closures for the holiday. Production reached a three-month high of 102.1 Bcf/d on Monday, consistently staying above 100 Bcf/d over the recent week as volumes previously shut in by producers returned to the market.

Last week, natural gas futures settled at $2.319, down $0.282 or -10.84%.

Futures Hit Seven-Week Low

U.S. natural gas futures fell nearly 11% to a nine-week low last week, primarily due to rising output and ample gas supply in storage. Despite forecasts for increased demand over the next two weeks, the contract experienced its largest weekly loss since mid-February. The recent price decline over the past 3-1/2 weeks is linked to an announced production increase by a major U.S. producer, which has significantly lifted output, overshadowing bullish weather factors.

Increased Production and Storage Levels

Gas output in the Lower 48 U.S. states has risen to an average of 102.1 Bcf/d in July, up from 100.2 Bcf/d in June and 99.5 Bcf/d in May. This increase follows a reduction in drilling activities earlier in the year when prices fell to 3-1/2-year lows.

Data from the U.S. Energy Information Administration (EIA) showed that utilities added 32 Bcf of gas into storage for the week ending June 28, aligning with analysts’ forecasts. This compares to an increase of 76 Bcf in the same week last year and a five-year average rise of 69 Bcf for this period. U.S. total gas in storage reached 3,134 Bcf, about 19% above normal for this time of year.

Demand Projections

With hotter weather expected next week, gas demand, including exports, is forecasted to rise to 106.8 Bcf/d from 105.9 Bcf/d this week, according to financial company LSEG. The Electric Reliability Council of Texas (ERCOT), which operates the power grid for most of the state, indicated that peak demand this week will approach but not surpass the record for July. This projection comes as a heat wave pushes homes and businesses to crank up their air conditioners.

European Market Stability

Meanwhile, European gas prices remained largely flat, with a slight rise in demand balanced by Norwegian gas flows. However, uncertainty over future supplies provided some support to the market.

Market Forecast and Technical Analysis

Given the current high production levels and significant storage surplus, the natural gas market outlook remains bearish in the short term. The weekly chart shows a significant resistance level at $3.266, with prices currently trading below this mark. Minor resistance is a pair of pivots at $2.759 and $3.028. Support levels are noted around $2.251, a previous low.

With the anticipated rise in demand due to hotter weather, prices may find support around these levels. However, a break below $2.251 could signal further declines. Traders should monitor weather patterns and production announcements closely to gauge future market movements.