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US Natural Gas Update: Futures Fall Despite Renewed Middle East Conflict as Ample Supply Weighs on Market

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US natural gas futures prices fell in midday trade on Wednesday, pressured by strong production and elevated inventories despite renewed conflict in the Middle East.

The front-month Henry Hub contract and the continuous contract each declined 1.29% to trade at $3.223 per million British thermal units.

Global crude and natural gas prices moved higher on fresh US attacks on Iranian targets on Wednesday, but US natural gas prices remained under pressure as the domestic market continues to contend with record output and a storage surplus.

Lower 48 dry gas production, while still robust, averaged 109.4 billion cubic feet per day so far in July, down from 110 Bcf/d in June and just below the record monthly high of 110.6 Bcf/d reached in December, Trading Economics said.

NRG Energy noted that production remains elevated, with dry gas output averaging 3.5 Bcf/d above year-ago levels on a year-to-date basis. It said storage inventories are also 175 Bcf above the five-year average, creating a significant buffer that continues to limit upside price potential.

However, upcoming storage data could provide a more supportive signal for prices as injection rates slow. NRG expects last week's 87 Bcf build to ease to roughly 57 Bcf this week and 43 Bcf the following week.

Gelber & Associates estimates Thursday's Energy Information Administration storage report will show a 50 Bcf injection, compared with a 53 Bcf build during the same week last year.

The firm said a build near expectations would suggest stronger cooling demand and steady LNG feedgas demand are beginning to narrow the supply surplus, although the storage overhang remains.

"A materially larger build would reinforce the idea that production and existing inventories are still absorbing summer demand, while a smaller build would give the market a better argument that the balance is tightening as peak cooling demand approaches," Gelber said in a Wednesday note.

On the demand side, national gas-fired power burn is expected to rise by about 2 Bcf/d over the next two weeks as above-normal temperatures spread across much of the US, NRG said.

Cooler weather in the gas-intensive Northeast, however, is expected to limit the overall increase in nationwide demand.

LNG feedgas demand was forecast at 18.44 Bcf/d on Wednesday, below recent levels and the 30-day moving average of 18.83 Bcf/d, according to the Bloomberg LNG Feedgas Model.

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