Rising Daily Volatility

Daily volatility in the natural gas market has escalated, with daily trading ranges expanding significantly. According to NatGasWeather, recent sessions have seen daily price movements of 10-20 cents, compared to a more stable 10-cent range in previous months. This increased volatility is contributing to uncertainty in market direction.

Weather and Demand Outlook

According to NatGasWeather, from May 29 to June 4, the southern U.S. is expected to experience very warm to hot weather, with temperatures ranging from the mid-80s to 100s in desert areas. The northern U.S. will see milder conditions, with highs in the 60s to lower 80s. However, a warm-up is anticipated next week, potentially boosting national demand for natural gas as temperatures rise into the 80s in the northern regions and remain hot in the southern areas.

Market Reactions and Storage Levels

U.S. natural gas futures rose by 3% on Tuesday due to expectations of higher demand over the next two weeks and increased LNG export activity. Despite these gains, there are indications of oversupply, with gas stockpiles about 27% above normal levels for this time of year. The June futures contract rose by 2.8% to $2.590 per mmBtu, while July futures increased by 2.0% to $2.83 per mmBtu.

Supply and Production Factors

Natural gas production in the Lower 48 states has averaged 97.7 billion cubic feet per day (bcfd) in May, down from 98.2 bcfd in April. Despite this, daily output has increased by 1.5 bcfd since early May. The rise in futures prices over the past month has encouraged some drillers to ramp up production. Nevertheless, overall production is still down around 8% in 2024 due to delayed well completions and reduced drilling activities.

Export Activities

LNG export plants have seen increased activity, with gas flows rising from an average of 11.9 bcfd in April to 12.8 bcfd in May. This is largely due to the resumption of operations at Freeport LNG’s plant in Texas. However, exports are still below the December 2023 record of 14.7 bcfd due to ongoing maintenance at various facilities.

Market Forecast

Given the current market conditions, the short-term outlook for U.S. natural gas prices remains bearish. Despite higher demand forecasts and increased LNG exports, the significant oversupply and rising production levels are likely to continue putting downward pressure on prices. Traders should remain cautious and monitor weather patterns and production data closely.