Weather Outlook Uncertain as Futures Approach 200-Day Average

Natural Gas Market Update

The key level of $3.564 seems to be a potential point for further downward movement, possibly heading towards the support levels of $3.437 and $3.381. Interestingly, the recent break of the 200-day moving average has sparked new buying interest, which might be trapping some short sellers. On Monday, there was quite a bit of action, with prices swinging nearly 10 cents in just an hour, fluctuating from $3.566 to $3.662, reflecting the traders’ uncertainty about the trend.

Storage Increases Surpassing Seasonal Averages

There’s noticeable pressure from the abundant supply situation, with inventories as of May 30th surpassing the five-year seasonal average by 4.7%. The latest EIA report indicated a typical build of 122 BCF, exceeding the expected 113 BCF and significantly higher than the usual seasonal increase of 98 BCF. Production remains strong, averaging 105.6 BCF per day, marking a 3.4% increase from the previous year, while the number of active drilling rigs has climbed to a 15-month high of 114 units.

Weather Forecasts Indicate Mixed Demand

In the short term, cooling trends in the Midwest, Plains, and Ohio Valley are expected to keep demand steady, with comfortable temperatures ranging from the ’60s to ’80s until mid-June. However, there’s intense heat developing in the West and Pacific Northwest, with temperatures hitting 100 degrees in some areas. Meanwhile, temperatures in the southern and eastern regions, particularly in California and the Southwest, are climbing into the 80s and 90s, indicating a shift from warm to much warmer conditions.

Second Half Tightening Expectations Favor Bulls

Even with the current oversupply, many market players are anticipating a substantial balance improvement in the latter half of the year. LNG exports are averaging around 13.6 BCF per day, showing a weekly increase of 2.7%, which helps support stable demand. Additionally, the low 48 gas demand is reported at 69.9 BCF per day, reflecting a year-on-year growth of 4.7%.

Market Outlook: Weather Clarity is Key

The expectation is that the market will likely stay within a range of $3.40 to $3.70, continuing a somewhat chaotic immediate battle, particularly with predictions of tightening in the second half. The $3.564 point on the 200-day moving average is pivotal. A significant break below this could see prices drop toward $3.437, but a surge in weather-driven demand might push them back up to $3.70. It’s worth keeping an eye on the upcoming EIA storage reports and any shifts in weather models for potential directional changes.