US Natural Gas Prices React to Record Production and Seasonal Consumption Patterns
Natural gas prices have experienced a significant pullback early this week, despite forecasts for higher-than-average temperatures across much of the United States. Cooler conditions may prevail in the western U.S. in the coming days, an area typically characterized by substantial gas consumption during the summer months.
Weather forecasts indicate that temperatures are expected to be lower than normal in the western U.S., but warmer conditions are anticipated across the entire United States within two weeks. Source: Bloomberg, NOAA
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Short-term temperature projections suggest that the average U.S. temperature over the next 2-3 days will be slightly below the 30-year average. Source: Bloomberg Finance LP
Last week, U.S. natural gas production reached new historical highs. Furthermore, there has been a noticeable resurgence in the number of active drilling rigs in the U.S. Source: Bloomberg Finance LP, XTB
Overall U.S. gas consumption (top chart) and power-sector gas consumption (middle chart) have reverted to levels near their five-year averages. Source: Bloomberg Finance LP, XTB
According to Bloomberg, the next 2-4 weeks are crucial for establishing the price trend for the remainder of the year. The energy commodities analytical team suggests that demand must increase to maintain a bullish seasonal narrative in the gas market. Price spreads between the current summer and the upcoming winter imply an expectation of significant inventory draws during the winter season. Nevertheless, if current weather conditions do not turn out to be particularly hot, it could lead to excessive inventory builds, driving gas prices to distinctly low levels from which even a substantial later rebound might appear modest.
Today's price action shows a substantial decline. It is worth noting that futures contract rollovers will occur after the July 22 session. Currently, there is a minor contango between the August and September contracts. The most significant difference is observed between the October and November contracts. The price is currently contending to reclaim levels above the lower limit of the upward trending channel and the 14-period moving average. However, if the price remains below these levels, it could signal a shift in the pricing outlook for natural gas, despite the typical seasonal increase at this time of year. Source: xStation5
