Production Surge and Weather Outlook
Production has climbed above 102 Bcf/d, signaling ample supply. While strong demand is expected over the next 15 days, it may not be sufficient to reduce surpluses at a pace satisfactory to major market players. This sentiment is reflected in the consistent sell-offs observed over the past 2-3 weeks.
Inventory Levels and Fund Positioning
US natural gas inventories remain significantly above normal, despite recent heatwaves driving higher electricity demand. As of June 21, working inventories were 568 bcf (+22%) above the prior 10-year seasonal average. In response, hedge funds and money managers have slightly reduced their bullish positions, selling the equivalent of 79 billion cubic feet in major futures and options contracts.
Price Movement and Market Sentiment
The persistent high inventory levels are testing the bullish case for substantial inventory reductions this summer. Consequently, futures prices for August 2024 delivery have retreated to $2.43 per million British thermal units from a recent high of $3.19.
Market Forecast
Based on the current production levels, inventory surplus, and cooling weather forecasts, the short-term outlook for natural gas appears bearish. The market may continue to face downward pressure unless a significant shift in fundamentals occurs, such as a sustained period of extreme heat or a notable reduction in production.
