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US Natural Gas Update: Futures Edge Lower as Strong Supply, Ample Stocks Offset Heat Demand

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US natural gas futures dropped in midday trading Tuesday as strong production and ample inventories outweighed hotter weather forecasts pointing to stronger cooling demand.

The front-month Henry Hub contract and the continuous contract were both down 1% at $2.766 per million British thermal units.

The US Energy Information Administration on Tuesday cut its forecast for the Henry Hub spot price in the third quarter to an average $2.87/MMBtu, 50 cents below its July forecast, citing lower LNG feedgas demand and stronger production.

The EIA expects US LNG exports to average 16.5 billion cubic feet per day in Q3, slightly below its previous forecast because of maintenance at Freeport LNG.

Lower feedgas demand is expected to contribute to higher storage levels, particularly in the South Central region. The agency nevertheless expects US LNG exports to continue growing through 2027.

The EIA expects US natural gas inventories to reach 3,985 Bcf in October, the highest level entering the winter heating season since 2016. Increased production and reduced LNG feedgas demand related to facility maintenance are driving the higher inventory outlook, it said.

Supply has eased somewhat, providing underlying support to prices. Production was around 111.2 Bcf/d, while Canadian imports fell to a two-week low of 4.8 Bcf/d, putting total supply at 116 Bcf/d, also the lowest level in two weeks, according to Gelber & Associates.

Demand has weakened at the same time, however. Power-sector gas burn was around 49.1 Bcf/d, while LNG feedgas demand fell to 17.8 Bcf/d, Gelber said.

"Both sides of the ledger" are helping keep prices in consolidation mode, Gelber said.

Fundamentals remain modestly supportive heading into the weekend, when power-sector demand is expected to rise above 50 Bcf/d and LNG feedgas demand could recover toward 19-20 Bcf/d as export facilities restore flows, Gelber said.

The broader weather outlook has moderated, however, with the latest model run reducing cumulative demand expectations over the next two weeks. That suggests the strongest phase of the mid-August heat pattern may be nearing its peak, it said.

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