Natural Gas Further DeclinesTraders are currently reducing natural gas losses, but the outlook for the summer is unimpressive, combined with technical factors, which suggests the possibility of further declines in the future.
Natural gas is trading on the weakside of $2.432 (R1), making it new resistance. Overcoming this level will indicate the return of buyers with $2.638 (R2) the next target.
A sustained move under $2.432 (R1) will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into $2.168 (Pivot), followed by $1.962 (S1)
S1 – $1.962 R1 – $2.432
S2 – $1.698 R2 – $2.638
S3 – $1.286 R3 – $2.902
Bearish Weather Continues
The current weather patterns are unfavorable for natural gas prices, as systems in the southern US are preventing widespread high temperatures. This bearish weather is expected to continue until hotter patterns arrive, which is projected to be around June 6-10.
Although natural gas prices are increasing on Wednesday, it is not being influenced by the weather. During the May 24-30 period, the US will experience active weather systems with showers, thunderstorms, and temperatures ranging from the 60s to 80s, except for hotter conditions in the Southwest deserts and South Texas reaching the 90s. The Great Lakes and Northeast regions will have cooler-than-normal temperatures, with overnight lows dropping into the upper 30s and 40s. This may result in a slight increase in heating demand.
Canadian Gas Exports to U.S. Normalize
Canadian natural gas exports to the United States have returned to normal levels following disruptions caused by wildfires in Alberta and other western provinces. This has led to a significant drop in U.S. gas futures, as Canada supplies around 8% of the gas consumed or exported by the U.S. In the past weeks, gas flows from Canada averaged 7.2 billion cubic feet per day (bcfd), lower than the year’s average of 8.3 bcfd.
However, the amount of gas exported from Canada to the U.S. is expected to remain near a three-week high of 8.1 bcfd. The wildfires had forced Canadian producers to cut exports to a low of 6.4 bcfd. Overall, the return to normal gas flows from Canada has impacted gas prices and market dynamics in the U.S.
Supply Dynamics
Gas output in the U.S. Lower 48 states reached 101.5 billion cubic feet per day (bcfd) so far in May, surpassing April’s record of 101.4 bcfd. Additionally, gas exports from Canada to the United States were expected to rise to 8.2 bcfd, a near three-week high.
Demand Dynamics
Despite predictions of slightly increased gas demand in the next two weeks, particularly due to low wind power generation, gas futures still experienced a decline. The proportion of U.S. power generated by wind dropped to 7% compared to the previous week’s high of 17%. This decline in wind power led to an increase in gas consumption for electricity generation, particularly in Texas.
In the short term, the outlook for natural gas is bearish. The decrease in wind power generation has resulted in higher gas usage for electricity production, reducing the available supply for storage. Meteorologists project mostly normal weather conditions in the Lower 48 states, except for some colder-than-normal days from May 24-28. Refinitiv forecasts a slight decrease in U.S. gas demand, including exports, from 90.4 bcfd to 89.8 bcfd next week, with revised higher forecasts compared to the previous day’s outlook. These factors contribute to the bearish sentiment in the market.
