- Meteorologists forecast a hotter-than-normal summer in the US.
- The heightened supply/demand imbalance will continue to sustain the rally in the short term.
- Amid the rising demand, analysts expect the natural gas price to hit $10 per mBtu in the ensuing sessions.
Natural gas price hit a fresh 14-year high in early Tuesday trade but lacked bullish momentum to break the critical resistance at $9.50 per million British thermal units (mBtu). Since the beginning of the year, US futures have surged by over 150%. In fact, since the beginning of June, it has risen by 15% amid the ongoing supply/demand imbalance. Low inventories and a forecast of a hotter-than-normal summer are set to sustain the ongoing rally. From this perspective, the US futures may hit $10 per mBtu in the short term.
What’s driving the market?
As has been the case in recent weeks, the weather remains one of the key bullish drivers of natural gas prices. Ordinarily, US producers take advantage of the spring season, when demand for the commodity is rather low, to build up inventories in readiness for the summer period. However, this year’s spring was different.
On the one hand, there has been a significant increase in the US liquified natural gas (LNG) exports to Europe as the continent seeks to lower its dependence on Russia’s products. At the same time, heat waves in the country’s South and West shifted the demand dynamics during that period.
As such, the US has gotten into the summer season with low inventories. Interestingly, the period is expected to be defined by higher-than-normal temperatures. According to the National Weather Service, states in the southwest region will likely record temperatures above 110 degrees Fahrenheit as of the coming weekend.
Besides, Texas expects power demand to hit a fresh record high in the coming days, surpassing levels last seen in August 2019. Texas is the leading consumer and energy producer in the country.
In addition to the extreme weather patterns, low inventories will also remain a crucial factor in the ensuing sessions. In its past weekly release, the Energy Information Administration (EIA) indicated that the amount of working gas in storage increased by 90 Billion cubic feet (Bcf) for the week ending on 27th May. Even so, the inventories remain337 Bcf below the 5-year average. Besides, they are 397 Bcf below the amount recorded in a similar period in 2021. Later in the week, the agency is set to release the inventory readings for the week ending on 3rd June.
Natural gas price forecast
Prior to mid-April, 8.00 had been an evasive level for US natural gas futures since November 2008. Amid the heightened demand and tight supplies, that level is now a crucial support zone. Indeed, I expect it to remain a steady support zone in the coming weeks.
On Tuesday, the bulls pushed the commodity’s price to a fresh 14-year high of 9.54, surpassing the multi-year high hit about two weeks ago at 9.44. It has since pulled back to 9.33 at the time of writing.
As shown on a daily chart, natural gas price is trading above the 25 and 50-day exponential moving averages. In the short term, it will likely continue to find resistance at around 9.50. The expected pullback may have the futures find support along the psychological zone of 9.00.
Past that level, it will be back to the horizontal channel between 9.00 and 8.27, which has been a crucial range since early May. On the flip side, the bulls will get an opportunity to hit the psychological level of 10 if they gather enough momentum to break the current resistance zone of 9.50.
