July Opening Rebound May Fade as US Inventory Improves

Natural Gas, LNG, Freeport, Inventory, Technical Outlook – Talking Points

• Natural gas sinks more than 16% overnight in New York, closing out a brutal June
• US inventory levels increase more than expected, posing a headwind to prices
• The 200-day Simple Moving Average (SMA) may come under pressure shortly

Natural gas prices plunged more than 16% overnight, dropping to the lowest level since March 2022. That drop extended a broader move lower from June when prices hit a record high. Now, down over 40% from that high, it appears bears are firmly in control. Prices still have to drop nearly $2.00 per million British thermal units (MMBtu) before erasing gains from January 01.

The European benchmark, priced at the virtual Dutch Title Transfer Facility, is up more than 12% this week. Europe faces a potentially disastrous winter after the loss of its Russian supply. Europe turned to the US for liquefied natural gas (LNG) to diversify its supply, but a catastrophic failure at a US export facility has effectively crippled the flow of that LNG. Moreover, US regulators are requiring the facility’s operator, Freeport LNG, to make safety plans before clearing repairs.

Prices may not continue sliding for long, with the National Weather Service’s 6-10 Day Temperature Outlook showing above-average chances for warmer than average weather across much of the continental United States. Higher temperatures typically translate into higher demand for natural gas due to the stress put onto the power grid as thermostats get turned down.

Meanwhile, the Energy Information Administration (EIA) reported an 82 billion cubic feet (Bcf) build in US inventory levels for the week ending June 24. That was above the 74 Bcf analysts expected. Overall, the reduced flows to Europe should help keep an artificial ceiling on prices in the United States even if temperatures soar.

Natural Gas Technical Forecast

Prices pierced below the 61.8% Fibonacci retracement level, which offered support just last week. The 200-day Simple Moving Average was subsequently breached before prices rebounded back above the SMA in early APAC trading. The rebound in prices appears modest and may represent a short countermove following the large drop. Bears may attempt to drive prices back below the 200-day SMA in the coming days.

Natural Gas Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter