Nat-Gas Prices Fall Back on Cooler Forecasts for the East

July Nymex natural gas (NGN26) on Monday fell -0.111 (-3.37%).

Nat-gas prices on Monday edged up to a new 2-month high but then fell back and closed sharply lower.

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Nat-gas prices fell back amid weather forecasts by Vaisala of cooler weather in the East for June 6-10, although above-normal temperatures are expected in the upper two-thirds of the US for June 11-15.

The outlook for the Strait of Hormuz to remain closed for the foreseeable future is supportive of nat-gas prices, as the closure has curbed Middle Eastern nat-gas exports, potentially boosting US nat-gas exports to offset the shortfall.

US (lower-48) dry gas production on Monday was 107.5 bcf/day (+0.3% y/y), according to BNEF.  Lower-48 state gas demand on Monday was 69.7 bcf/day (+10.0% y/y), according to BNEF.  Estimated LNG net flows to US LNG export terminals on Monday were 17.8 bcf/day (-3.3% w/w), according to BNEF.

Projections for higher US nat-gas production are negative for prices.  On May 12, the EIA raised its forecast for 2026 US dry nat-gas production to 110.61 bcf/day from an April estimate of 109.60 bcf/day.  US nat-gas production is currently near a record high, with active US nat-gas rigs posting a 2.5-year high in late February.

Nat-gas prices have some medium-term support on the outlook for tighter global LNG supplies.  On March 19, Qatar reported “extensive damage” at the world’s largest natural gas export plant at Ras Laffan Industrial City.   Qatar said the attacks by Iran damaged 17% of Ras Laffan’s LNG export capacity,  a damage that will take three to five years to repair.   The Ras Laffan plant accounts for about 20% of global liquefied natural gas supply, and a reduction in its capacity could boost US nat-gas exports.  Also, the closure of the Strait of Hormuz due to the war in Iran has sharply curtailed nat-gas supplies to Europe and Asia.

As a positive factor for gas prices, the Edison Electric Institute recently reported that US (lower-48) electricity output in the week ended May 23 rose +5.2% y/y to 81,890 GWh (gigawatt hours), and US electricity output in the 52 weeks ending May 23 rose +2.0% y/y to 4,335,116 GWh.

Last Thursday’s weekly EIA report was bullish for nat-gas prices, as nat-gas inventories for the week ended May 2 rose by +92 bcf, below expectations of +96 bcf and the 5-year weekly average of +97 bcf.  As of May 22, nat-gas inventories were up +0.3% y/y, and +6.2% above their 5-year seasonal average, signaling ample nat-gas supplies.  As of May 27, gas storage in Europe was 39% full, compared to the 5-year seasonal average of 53% full for this time of year.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com