Russ Cohen

Natural Gas Futures: Weathering the Storm of Rising Production Natural Gas Futures: Weathering the Storm of Rising Production

Market Dynamics: A Battle of Bulls and Bears

U.S. natural gas futures underwent a rollercoaster ride last week, grappling with volatile shifts. Initially climbing above $3/MMBtu in anticipation of scorching summer temperatures, prices steadily declined due to murmurs of heightened production and a slightly milder heatwave forecast. This downward trend starkly contrasted with the cash market, which witnessed a surge in prices driven by a scramble for supply ahead of the anticipated late-June heat spike.

Weekly Natural Gas Price Chart

Market Review: A Tale of Diverging Markets

While futures spiraled downwards, cash markets flourished. This disparity underscores the conflicting forces at play. Bears took the reins in the futures market as increased production and a moderated heat forecast paved the way for abundant supply. Contrarily, bulls reigned in the cash market as natural gas end-users actively sought supplies in preparation for the upcoming heatwave, propelling spot prices upwards.

Supply and Inventory: A Bearish Picture Emerges

The recent pessimistic sentiment can be attributed to a combination of factors. An EIA storage report unveiled comfortable storage levels surpassing both last year’s data and the five-year average. Furthermore, production in the Lower 48 states bounced back to a solid 100 Bcf/d, further bolstering the bearish narrative.

Weather Outlook and Demand: A Glimpse of Bullishness

Despite the prevailing bearish winds in futures trading, a glimmer of hope exists for the bulls. Weather forecasts hint at an impending heatwave enveloping the southern United States in the days ahead, boosting demand for natural gas-fired electricity generation. This surge in demand may offer some support to cash prices.

Mountain Valley Pipeline: Disruptive Force or Dull Impact?

The long-awaited completion of the Mountain Valley Pipeline (MVP) looms, potentially injecting an additional 2.0 Bcf/d of supply into the market. Nonetheless, some analysts caution that downstream pipeline bottlenecks could temper the MVP’s immediate effect on summer price dynamics.

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Production Resumes, Adding to the Equation

EQT, the country’s top gas producer, has recommenced previously curtailed production. This surplus supply, likely channeled through the MVP, might further suppress prices in the near future. Nevertheless, the full repercussions hinge on the speed and effectiveness of integrating this production surge into the existing infrastructure.

Market Projection: A Bearish Slant Amid Tentative Optimism

Given ample storage, escalating production, and the imminent arrival of the MVP, the immediate forecast for natural gas futures leans towards a bearish outlook. However, the impending heatwave could breathe some bullish momentum into cash prices. Traders are advised to closely monitor storage reports, pipeline advancements, and weather updates to navigate the ongoing tug-of-war between bullish and bearish sentiments.

This article was initially published on FX Empire