U.S. Natural Gas Futures Fall to $2.83 on Mixed Signals
Natural gas prices are much lower in the United States today after supplies increase and demand remains muted.
Quick overview
- Natural gas prices in the U.S. fell to $2.83 per MMBtu, marking a two-month low due to high supplies and mixed demand.
- While a heat wave is increasing demand in some areas, low export levels and reduced production are creating a lack of demand in others.
- Global natural gas supplies are threatened by conflicts in the Middle East, impacting LNG flows to Asian and European markets.
- Domestic U.S. natural gas supplies are 6.6% higher than the five-year average, but low export demand and increased renewable energy production are keeping prices low.
On Monday, natural gas prices dropped to $2.83 per MMBtu in the United States, falling 2.55% and setting a two-month low as supplies remain high and demand is mixed.
In some areas of the U.S. an ongoing heat wave is driving natural gas demand up as gas-powered AC units require more fuel. In other areas, the low export levels and diminished production is creating a lack of demand that rivals the driest times for the market in recent years.
Benchmark crude oil climbed higher, with Brent crude reaching $88 per barrel and West Texas Intermediate climbing to $82 per barrel. Fighting continued in the Middle East between Iran and the United States, restricting shipments through the Strait of Hormuz and placing oil reserves in danger.
Ample Domestic Supply in Contrast to Limited Global Supply
Around the world, supplies of natural gas are in danger. LNG flows to Asian and European markets are restricted due to the ongoing conflict in the Middle East, Shipments are not reaching in a timely manner to global customers, and the future supply is in question.
That is a stark contrast to the bountiful supplies of LNG in the United States which are about 6.6% higher than the five-year average. These supplies are often kept in check from becoming too high by a robust export business, but that side of the market has slowed. Several export terminals are closed for seasonal maintenance, and others have slowed down their flows to account for lower demand.
During the week of July 10th, 41 billion cubic feet of natural gas was injected into U.S. inventories, pushing the levels higher. Recent builds are much higher than anticipated, and new injections are raising the level even higher, creating an oversupply that is not being countered by ample demand.
If export demand increases due to ongoing fighting in the Middle East and export facilities reopen quickly, then domestic supplies may decrease soon. However, neither of those events are likely to happen, since even during the lengthy fighting in the Middle East between February and May there was little need for US natural gas. Most countries relied on delayed shipments through normal routes rather than pay to import natural gas all the way from the U.S. We anticipate that the domestic natural gas market will continue to have low rates throughout the summer season while demand is relatively low. The already limited demand is also combating increased pressure from solar and wind power production, which has risen in recent weeks.
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