Looking to the Futures

Natural Gas Spikes on Hot Temps

Key Points

  • Biden Taps SPR as Demand Grows and Supplies Struggle


Natural gas prices traded higher to start the week after forecasts show hotter than average temperatures in the United States. Droughts are causing a depletion of reservoirs and could reduce energy production from hydropower. EIA projections saw increased demand for natural gas during 2022. Natural gas production has increased in the United States according to data released by the BNEF on Monday.

Electricity demand increased sharply on Monday as forecasts show an increase in U.S. temperatures throughout the United States. Maxar Technologies reported yesterday that above-average temperatures are expected throughout the South from May 16-20.

As temperatures increase and energy expectations are on the rise the pressure on natural gas has been compounded by the reduction of water levels in reservoirs. Lake Mead has recently fallen to a record low, causing concerns on access to hydropower, and boosting demand for natural gas.

The Edison Electric Institute released data last Wednesday that showed an increase in U.S electricity output. In the week ending May 7, U.S. total energy output rose +3.2% y/y to 72,564 GWh. Cumulative U.S. electricity output rose +2.5% to 4,076,407 GWh in the 52-week period ending May 7th.

Natural gas demand is projected to surpass supply through 2022 according to a study released last Tuesday by the Energy Information Administration. The study outlined U.S. nat-gas futures could average 42% higher than forecasts released a month ago, at $7.42 million British thermal units.

Foreign demand for U.S. natural gas is another bullish factor for prices. BNEF data released yesterday shows gas flows to U.S. export terminals increased +12.8% y/y to 12.178 bcf.

Last Thursday's weekly EIA report shows a decrease of U.S. nat gas inventories, rising +76 bcf to 1,643 bcf in the week ending May 6th, lower than the expected +79 bcf. Inventories are -16.0% below the 5-year average, and down -19.0% y/y.

We may see supply limits coming out of Russia after they have announced foreign buyers will be required to open a special ruble and foreign currency accounts by the end of May in order to buy Russian natural gas. Russia has stopped nat gas shipments to Bulgaria and Poland after they refused to buy natural gas in rubles.

Natural gas production has increased in the United States. BNEF data released yesterday shows the lower 48 nat gas production increased +1.9 bcf y/y to 94,9 bcf.

Last Friday’s Baker Hughes report shows the number of active U.S. nat-gas drilling rigs increased by +3 rigs to 149 rigs in the week ending May 13th.

Technicals:

Looking at the daily chart for the Henry Hub Natural Gas June 2022, NGM22 contract we can see the consistent uptrend over the past 2 months. The contract has used the 20-Day Simple Moving Average as a support level and has traded well above the 50-Day and 200-Day SMA levels over the 60-day time period.

Trading Central’s Daily Technical Analysis has support levels found at 7.5700 and 7.2000 with resistance levels 8.7100 and 8.9400.

According to the CFTC Commitment of Traders report released May 10th managed money traders have decreased their long position by -12,099 and decreased their short position by -3,818 contracts.

The 14-Day Relative Strength Index at 64.30% indicates that the contract is moving into overbought territory.

Contract Specs:

Henry Hub Natural Gas June 2022 (NGM22)

Trading Calendar:

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