Natural Gas Futures Slide as Production Rises and Demand Dips
U.S. natural gas futures faced a decline on Monday due to a combination of factors, including increased production and reduced demand for LNG feed gas, despite forecasts of scorching weather conditions. July Nymex natural gas futures marked their fourth consecutive session of losses, continuing the downward trend observed last week.
At 13:26 GMT, Natural Gas futures were trading at $2.819, down by $0.062 or -2.15%.
Market Dynamics and Influences
Despite predictions of the hottest weather in 45 years, natural gas prices experienced a drop. The significant selling pressure was driven by several factors, including the commencement of operations for the Mountain Valley Pipeline (MVP), contributing to supply concerns. Moreover, robust production levels and diminished demand for LNG feed gas added to the bearish sentiment in the market.
Insights from NatGasWeather
NatGasWeather reported a continuous decline in natural gas prices following the weekend, marking four consecutive sessions of losses. This downward trajectory persisted even with weather models forecasting an exceptionally hot weather pattern. The 15-day forecast suggests extreme heat conditions, as indicated by cumulative cooling degree days (CDDs).
Weather Outlook: June 17-23
Strong high-pressure systems are expected to dominate much of the southern and eastern United States throughout the week, leading to temperatures ranging from the upper 80s to 100s. Notably, Chicago is projected to experience mid-90s temperatures on Monday, followed by 90s across most East Coast cities from Tuesday to Thursday. Conversely, cooler temperatures ranging from the upper 50s to 70s are anticipated in the Northwest to Northern Plains due to incoming weather systems and showers. Overall, the demand for natural gas is anticipated to remain high.
Recap of Last Week’s Market Trends
Last week witnessed a contrast between futures and cash markets. While futures plummeted due to increased production and a moderated heat outlook, the cash market saw a surge as users sought to secure supplies in anticipation of the impending heatwave. This disparity underscored the conflicting dynamics influencing the market.
Supply and Storage Analysis
The bearish sentiment in the futures market was reinforced by the EIA‘s storage report, revealing comfortable storage levels surpassing last year’s figures and the five-year average. Production in the Lower 48 states also rebounded significantly to 100 Bcf/d, heightening concerns about market oversupply.
Market Forecast: Bearish Outlook with Potential Upside
Despite the forecast of extremely hot weather and consequent high demand, the short-term outlook for natural gas futures remains bearish due to ample storage, rising production levels, and the operational status of the MVP. However, the anticipated heatwave may lend some support to cash prices. Traders are advised to closely monitor storage reports, pipeline developments, and weather updates to navigate the ongoing interplay between bullish and bearish factors.
Technical Analysis
Natural gas futures observed a sharp decline on Monday, reflected in the daily and weekly charts.
The short-term range is between $2.518 and $3.159. Currently trading below its pivot at $2.840, the market indicates potential further downside. If the downward momentum strengthens, a pullback towards the longer-term pivot at $2.652 followed by the 50-day moving average at $2.578 could be expected.
On the upside, resistance lies at the 200-day moving average at $2.937.