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US Natural Gas Update: Prices Fall as Robust Supply Offsets Heat-Driven Demand Outlook

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US natural gas futures extended losses in late trading on Monday as strong domestic production and ample supplies outweighed forecasts of hotter weather that was expected to lift cooling demand across much of the country.

The front-month Henry Hub contract and the continuous contract fell 1.83% to $3.172 per million British thermal units.

The decline followed strong production data over the weekend. Barchart said US dry gas output climbed to 114 billion cubic feet per day on Sunday, the highest daily production level in more than two and a half months. Citing BNEF data, it said Monday production eased to 111.2 Bcf/d, down 1.3 Bcf/d from Friday but still 2.3% higher than a year earlier.

The elevated supply backdrop has continued to limit gains despite expectations for stronger seasonal demand.

Gelber & Associates estimated total domestic supply averaged about 116.0 Bcf/d over the past two weeks, consisting of roughly 110.4 Bcf/d of dry gas production and 5.6 Bcf/d of net Canadian imports.

Weather forecasts, however, point to rising electricity demand as above-normal temperatures spread across much of the eastern US.

The Commodity Weather Group said forecasts turned hotter on Monday, with above-average temperatures expected across the eastern half of the country through July 3. Aegis Hedging said Lower 48 population-weighted temperatures are projected to remain above the 10-year average during the first week of July, supporting natural gas demand.

A heat dome centered over the Midwest is forecast to expand eastward this week, bringing triple-digit temperatures to a broad swath of the country and boosting expectations for power-sector gas consumption.

BNEF put Lower 48 gas demand at 75.4 Bcf/d on Monday, up 4.2 Bcf/d from Friday and 3.3% higher than a year earlier. Net flows to US LNG export terminals were estimated at 19.2 Bcf/d, up 0.1 Bcf/d from Friday and 1.0% higher than the previous week.

"As the market adjusts to the new prompt month, the primary test will be whether this incoming wave of midsummer power demand can outpace a resilient supply stack and begin whittling down the overall storage surplus," Gelber & Associates said.

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