Natural gas futures in the US saw a significant rebound on Thursday, despite an initially bearish storage report, as traders shifted their focus to a projected heatwave. August natural gas futures were trading at approximately $3.298, up about 1.13%, while July futures were around $3.290, up roughly 2.14%. This increase in price was primarily driven by forecasts indicating widespread heat across the eastern two-thirds of the country next week, with temperatures expected to reach 80s to 100s, exacerbating already warm conditions in the western and southern US.
The market's quick reversal followed the EIA's report of a 76 Bcf injection into storage for the week ending June 19, which exceeded expectations ranging from 67 Bcf to 72 Bcf. This build brought total working gas to 2,835 Bcf, 152 Bcf above the five-year average but 49 Bcf below last year's levels. Despite this seemingly bearish data, traders anticipated that the upcoming heat would significantly increase air conditioning demand, subsequently reducing future storage injections and tightening the supply-demand balance.
Analysts predict that the next inventory report will show a lower-than-normal storage build, possibly around 67 Bcf, which is below the five-year average of 75 Bcf for that period. This expectation, coupled with increased gas exports, particularly to China, has bolstered the bullish outlook. US natural gas production in the Lower 48 states has seen a slight tightening, averaging 109.5 Bcf/day in June, down from 109.7 Bcf/day in May, while LNG export facility flows rose to 17.3 Bcf/day in June from 17.1 Bcf/day in May. These factors collectively contributed to the price surge, with a bullish technical outlook reinforcing August natural gas futures above their 50-day moving average.
However, it's worth noting that cooler weather forecasts earlier in the week had led to a decline in US natural gas futures. For instance, on June 23, prices dropped due to predictions of cooler temperatures and lower LNG flows, which suggested reduced demand. The entry into service of Kinder Morgan’s Gulf Coast Express pipeline expansion project also contributed to increased supply in surrounding regions. Overall, the market remains reactive to short-term weather forecasts and their impact on demand, particularly for gas-fired electricity, with current inventory levels remaining above the five-year average despite recent shifts.
