Natural gas price has bounced off Thursday’s low even as it remains below the critical level of $6.00 per million British thermal units (mBtu). In the previous session, US futures dropped below the aforementioned level for the first time since early April. As a reaction to EIA’s storage data, the commodity’s price dropped by over 15% to an intraday low of $5.36. As at the time of writing, it was at $5.88; up by 7%.
Market outlook
Notably, June has been the worst month for US natural gas price since December 2018. During the just concluded month, the futures have declined by about 33%.
As has been evident in recent months, the supply/demand balance is a crucial driver of natural gas price. Indeed, it is highly sensitive to a slight imbalance.
Low inventories in US storage facilities, coupled with rising demand for cooling during the country’s summer period and a surge in exports to Europe, boosted prices to a 14-year high in early June. The perceived scarcity came at a time when the country tends to record high cooling demand- the summer period.
While the US summer period, and subsequent demand for cooling, is set to continue for a further two months, easing of supply concerns are largely behind the recorded decline. Earlier in June, the Freeport’s Texas storage facility announced that it would remain closed for longer than the anticipated three weeks. Operations at the facility account for about 17% of the country’s LNG production. Subsequently, the outage provided an opportunity to build up on domestic storage levels.
Drivers in the coming week
Data released by EIA on Thursday showed that the working gas in storage rose by 82 Billion cubic feet (Bcf) in the week ending on 24th June. At its current level, it is 296 Bcf below a similar period in 2021 and 322 Bcf below its 5-year average.
Based on these figures, the inventories are over 10% below last year at the same period. Even so, the deficit is now at a manageable level. Besides, the weather outlook for most regions within the US supports the easing of natural gas price.
According to the National Oceanic and Atmospheric Administration (NOAA), the Fourth of July weekend will be marked by slight higher-than-normal temperatures in the region stretching from the Great plains and northern Rockies to the Northeast and Great Lakes areas. For most regions within the western part of the country, the forecast is for near-average to below-average temperatures.
With weather remaining a key driver of natural gas price, the bulls will be looking to defend the critical zone of $5.00 in the ensuing sessions. Below that support zone, $4.66 will be a level worth watching. On the upside, it may remain below $6.50 in the coming week. With reference to the technical indicators, this forecast is substantiated by the formation of the bearish death cross- where the 25-day EMA has crossed below the 50-day EMA to the downside. Subsequently, it may face resistance at the psychological level of $6.00 in the short term.
