The above-normal temperatures forecast in the US is keeping Natural Gas prices higher. July month expiry contract is currently trading at $3.085, registered high of 3.149 yesterday which is the highest level in last 3-1/2 months.
Weather data agency Maxar is excepting above-normal temperatures in the northern half of the US from June 1-15, with well-above-normal temperatures in the Upper Midwest and Northeast from June 6-10. Above normal temperature increases air cooling demand which indirectly helps NG prices. Power producing companies use natural gas to produce electricity.
Natural gas prices are also finding support export demand and increasing domestic electricity production. As per Bloomberg data, gas flows to US LNG export terminals on Tuesday was 11.1 bcf, about triple y/y. On Apr. 18, gas flows to US LNG export terminals climbed to a record 11.921 bcf (data from 2014). US electricity output in the week ended May 22 rose +5.4% y/y to 72,050 GWh (gigawatt hours).
However, natural gas prices are likely to find some resistance due to weak domestic demand. NG demand in the lower in the US on Tuesday fell -10% y/y to 54.9 bcf. The US gas production is also increasing which is negative for prices. As per Bloomberg data showed US gas production on Tuesday was up +3.4% y/y at 89.774 bcf/d.
As per the last EIA weekly inventory report, US gas inventories in the week ended May 21 rose +115 bcf to 2,215 bcf, against expectations of a +105 bcf increase. Current natural gas inventories are down -15.2% y/y and -2.8% below their 5-year average.
The gas rig count is an early indication of production. Baker Hughes reported last Friday that the number of active US natural gas drilling rigs in the week ended May 28 fell by -1 rig to 98 rigs, well above the record low of 68 rigs posted in July 2020 (data since 1987).
Natural gas July month contract expiry prices are likely to remain firm while above the key support level of 20 days EMA at $2.971 and 50 days EMA at $2.884. Meanwhile, it is likely to face stiff resistance of around $3.247