Last week, U.S. natural gas prices fell to their lowest level since mid-June. The price dropped below the level of 2.5, but failed to consolidate there. An upward rebound has started, and July peaks in the range of 2.7-2.75 may now be its target. In terms of the fundamental background, there are also signs of a rise in the price of natural gas in the coming weeks.
The U.S. Energy Information Administration released its May oil and gas production report last week. In the last month of spring, natural gas production totaled 3,196 billion cubic feet, up 5% year-on-year. In general, since the beginning of 2023, gas production levels have reached 15,462 billion cubic feet (+7% year-on-year). These dynamics demonstrate a slowdown in hydrocarbons production.
A sharp decline in gas prices is forcing many companies to abandon production expansion. The average number of active drilling rigs targeting primarily gas-bearing formations fell from 162 in September 2022 to 132 in July 2023. This is already causing a slowdown in the replenishment of gas storage.
At the beginning of July, natural gas surplus was estimated at 297 billion cubic feet (+11% over the 10-year average). However, by the end of last month, the surplus shrunk to 222 billion cubic feet (8% above the 10-year average). This drop was the largest since last December.
Record LNG exports, as well as growing domestic consumption of the fuel due to the heat wave, are contributing to the slowdown in inventory replenishment. As a result, the accumulated gas surplus in the U.S. may completely disappear by the start of the 2023/24 heating season.
The nearest growth target for gas prices should be 2.7, followed by 2.75. This scenario is the most probable, as long as the quotations stay above the 2.5 level.
Consider the following trading strategy:
Buy gas at the current price. Take profit 1 – 2.7. Take profit 2 – 2.75. Stop loss – 2.5.
This content is for informational purposes only and is not intended to be investing advice.
