Market Outlook on Natural Gas.
Wildfires Impede Canadian Gas Exports, Driving Prices Up
Natural gas prices soared by 7.26% to settle at 212.7 as a result of wildfires hindering gas exports from Canada, which reached a 25-month low. The disruption in supply due to the wildfires contributed to the bullish sentiment in the market.
Production Decline Raises Concerns for Future Supply
Concerns regarding a potential future decline in natural gas production further supported the upward trend in prices. Recent data revealed a reduction in the number of rigs for drilling gas, as evidenced by the Baker Hughes report. The gas rig count fell by 16 to 141 last week, marking the lowest level since April 2022 and the largest weekly decline since February 2016.
Record US Gas Output Maintains Stability Despite Price Decline
Despite the recent decline in prices, average gas output in the US Lower 48 states remained steady at a record level of 101.4 billion cubic feet per day (bcfd) throughout May. This consistently high output has contributed to the surplus of natural gas supply in the market.
Heading: US Natural Gas Prices Continue to Face Downward Pressure
Persistent Market Factors Keep Prices Down
US natural gas prices have declined by over 40% since the start of 2023, remaining close to two-year lows. Warmer weather conditions have led to reduced demand while supply remains abundant, exerting downward pressure on prices.
Weather Shifts and Declining Demand Anticipated
Forecasts indicate a switch in weather patterns for the US Lower 48 states, transitioning from warmer-than-normal levels to near-normal conditions between May 18 and 27. This shift, combined with other factors, is expected to lead to a decrease in US gas demand, including exports, from 91.7 bcfd this week to 89.0 bcfd next week.
Storage Build Below Market Expectations
During the week ended May 12, 2023, US utilities added 99 billion cubic feet (bcf) of gas into storage. This figure fell below market expectations of a 108 bcf increase, indicating lower demand than anticipated.
Expected Market Movement:
From a technical standpoint, the market is currently experiencing short covering as open interest dropped by -5.52% to settle at 25,377. Despite this, prices have increased by 14.4 rupees. Natural gas is anticipated to find support at 199.5, and a breach of this level could lead to a test of 186.4. On the upside, resistance is likely to be encountered at 220.8, with a move above potentially pushing prices to test the 229 mark.