Natural gas price outlook: demand from US and Europe to sustain rally

Natural gas price is back below the resistance level of $8.00 per MMBtu after momentarily rising above this level in the previous session. The pullback was a reaction to the recorded increase in US natural gas inventories. Even so, heightened demand from both the US and Europe are bound to sustain the rally in the short term.  

US natural gas inventories

The rallying of natural gas price is a sign that demand remains heightened despite the rising supplies. On Thursday, the Energy Information Administration (EIA) reported that amount of gas in US storage facilities increased by 32 Billion cubic feet (Bcf) in the week ending on 15^th July. Granted, the increase is lower than the prior week’s 58 Bcf and expected 47 Bcf.

The stocks remain 270 Bcf below the recorded amount at a similar period in 2021. It is also 328 Bcf below the 5-year average although the total amount of working gas is still within the 5-year historical range.  As shown in the chart below, US gas inventories have been on the rise in recent weeks following the closure of the Freeport LNG facility. The Texas plant, which accounted for about 20% of the US LNG needs,  is expected to resume production in October.

Demand outlook

Even with the rise in supplies, the demand for US natural gas remains elevated; an aspect that substantiates the bullish forecast. To begin with, the higher-than-normal temperatures in several regions within the US has heightened demand for the commodity.

As shown in the figure below, various cities set fresh record highs earlier in the week, with come reporting temperatures as high as 115 degrees. For instance, on Wednesday, Abilene, Texas recorded  a high of 110 degrees; breaking the record high of 107 degrees set in 1936. Other areas within the states of Oklahoma, Missouri, Arkansas, and Texas have also been experiencing above-normal temperatures.

Besides, there is still a huge demand of US natural gas from Europe. This is founded on concerns that Russia may further curb natural gas flows to the region through the Nord Stream 1 pipeline. After 10 days of maintenance, flows to Germany via the pipeline resumed on Thursday at 40% of its capacity. This is rather the same as prior to the annual works. However, Russia has indicated that may drop to about 20% by the end of July as another part of the pipeline is due for maintenance.