Sun, June 16, 2024

Natural Gas Prices Surge 59% Amid Tight Supplies

natural gas

Quick Look:

  • Natural gas prices surged due to geopolitical tensions and increased demand expectations approaching summer.
  • Extreme heat in Texas and fluctuating temperatures across the U.S. drive high demand for natural gas.
  • The return of the Freeport LNG plant tightens supply, significantly boosting gas flows to export facilities.

The natural gas markets exhibit signs of being overbought, indicating a potential pullback. A market correction seems likely with the Relative Strength Index (RSI) above 70. Long position holders have taken profits but are prepared to reinvest if a substantial pullback occurs, viewing it as a value opportunity. Trading natural gas is challenging, leading many to invest through the UNG ETF to avoid leverage.

Despite the usual seasonal weakness, the market appears to be forming a base for a long-term bottom. Traders are cautious, acknowledging the overbought condition and recognising the underlying fundamentals suggesting future growth.

Extreme Heat in Texas Boosts Natural Gas Futures

Natural gas futures are trending higher, nearing the 200-day moving average, driven by extreme heat in Texas and increased gas flows to export facilities. The return of Freeport LNG’s liquefaction train has supported these flows, contributing to higher futures prices. Texas temperatures are expected to rise, keeping demand high and maintaining bullish market sentiment.

The return of the Freeport LNG plant has significantly tightened supply, leading to higher gas flows to LNG export facilities. This has been a key factor in the recent surge in futures prices. U.S. gas futures at Henry Hub have surged by 59% over the past three weeks in response to these developments.

Natural Gas Price Rises 1.90% to $2.676 by Midday

Natural gas futures are trending higher, buoyed by bullish momentum and tight supplies ahead of summer. As of 12:45 GMT, the price of natural gas is $2.676, a $0.05 increase (1.90%). This trend reflects increasing demand and tighter supply, with market participants anticipating continued strength.

Recent price movements reflect rising demand and tighter supply. Mixed cash prices and expected summer weather have boosted demand, while pipeline maintenance has varied support levels. A decline in domestic production has led to a roughly 9% drop in expected production for 2024, supporting higher prices.

Highest Futures Levels Since February Amid Tight Supply

Since February, natural gas futures reached their highest levels, supported by strong sentiment and a balanced supply-demand outlook. Mixed cash prices and anticipated summer weather have boosted demand, while pipeline maintenance has provided varying support levels. A decline in domestic production has led to a 9% drop in expected production for 2024, tightening supply further.

The market has responded positively, with futures prices reflecting increased demand and tighter supply conditions. Recent inventory data and production trends suggest continued market strength. Traders focus on managing positions effectively amidst these dynamics.

May LNG Flows Hit 12.7 Bcfd, Inventory Rises 70 Bcf

Gas flows to seven major U.S. LNG export plants rose in May, with a smaller-than-expected inventory increase. May gas flows reached 12.7 billion cubic feet per day (bcfd), up from 11.9 bcfd in April. The EIA reported a 70 billion cubic feet (bcf) inventory increase for the week ending May 10, compared to a forecast of 76 bcf. Year-on-year inventory levels increased by 17.5%, while the five-year seasonal average rose by 30.8%.

These trends indicate that demand is outpacing supply, supporting higher prices. Increased gas flows to LNG export plants signal strong export demand, tightening supply further and creating a supportive environment for higher natural gas prices.

Watch the $2.767 Level for Potential Bulltrap or Support.

Although cooler weather may temper the outlook, natural gas futures will likely maintain their upward trend in the short term. Traders should monitor inventory reports and weather forecasts closely. The 200-day moving average at $2.767 is critical, with profit-taking or a breakout expected. This could become a new support level if buying continues. Weather, inventory data, and market sentiment will determine future price direction.

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