Bullish momentum increases as supply tightens
The natural gas market posted its fifth consecutive gain on Monday, driven by the possibility of a rare draw on summer supplies later this week. This development shows lower production combined with good demand, tightening the balance between supply and demand. Despite ample supply in the market, signs of fundamental changes, including reduced production and higher cash prices, have caught the attention of asset managers and fueled the recent rise in natural gas futures.
Weather conditions lead to increasing demand
Weather forecasts play a significant role in current market dynamics. According to NatGasWeather, moderate national demand is expected over the next three days as weather systems move across the northern U.S., bringing highs between 15 and 25 degrees Celsius. However, a sharper increase in demand is expected over the following 4-15 days, as highs between 25 and 38 degrees Celsius are expected across much of the interior U.S., particularly in the deserts of the Southwest and Texas. This expected increase in demand contributes to the optimistic outlook in the natural gas market.
Russian gas supplies to Europe called into question
According to Reuters, the stability of Russian gas supplies to Europe remains uncertain in the long term. Despite the ongoing conflict in Ukraine, Russia continues to supply gas through the Urengoy-Pomary-Uzhgorod pipeline. However, the future of this transit route is uncertain as the current agreement expires at the end of 2024. To reduce dependence on Russian gas, Europe is increasingly turning to liquefied natural gas (LNG) imports from the US and other countries, a trend that is likely to continue amid ongoing geopolitical tensions.
Market forecast: Bullish outlook
Given the tightening supply-demand imbalance and the expected increase in cooling demand, the near-term outlook for U.S. natural gas futures remains optimistic. Traders should watch for continued weather-related demand increases and potential global supply disruptions, particularly from Russia, as these key factors could continue to support prices.
