- Natural gas prices are down more than 4% this week and are hovering around a critical support level of $2.50 per million British thermal units (mmBtu). While fundamentals have not changed much, prices are falling.
- It’s currently warmer than usual, but not very hot.
- Gas demand is expected to increase over the coming weeks and peak in late July or early August. This increase is due to the increase in electricity needs for air conditioning. Let’s not forget that hurricane season begins in mid-August, which could disrupt gas production.
An analysis of key factors for NATGAS:
Weather forecast :
Compared to last Friday, the temperature forecast has not changed much. It could be a bit cooler in the central United States. Source: Bloomberg, NOAA Bloomberg, NOAA
Outlook for the month of July:
A NOAA report from June 20 indicates a high probability (60-80%) of above-average temperatures over most of the United States. Source: NOAA
Gas and cooling demand:
The number of cooling degree days (a measure of cooling needs) is increasing, but the forecast for this week is not much higher than the previous two weeks. This could contribute to lower prices. However, the peak demand season is still ahead, in late July and early August. Source: Bloomberg Finance LP: Bloomberg Finance LP, XTB
Demand compared to seasonal average:
Gas demand has recently returned to around the five-year average and is expected to continue to increase in the coming weeks based on seasonality. However, daily fluctuations are not expected to exceed 4-6 billion cubic feet per day (bcfd). Source: Bloomberg Finance LP: Bloomberg Finance LP, XTB
Seasonal low:
Based on historical prices over the past five years (average, minimum and maximum), we may have passed the seasonal low point. But it is important to consider that part of the average price increases is due to the upward curve of futures prices (contango). Source: Bloomberg Finance LP: Bloomberg Finance LP, XTB
Rebound in production:
Natural gas production is rebounding and is currently about 4 billion cubic feet per day below its record highs. This is happening even as the number of drilling rigs has declined significantly. (Source: Bloomberg Finance LP, XTB)
Perspectives techniques :
The price is down over 4% in early July and is testing the crucial support at $2.5/MMBTU, slightly above the 200-SMA (purple line). If the price does not recover from the current zone, it will be possible to go down to the zone at the level of 2.2-2.3 USD/MMBTU. On the other hand, seasonality shows that the local trough should already be behind us. Source: xStation5
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