Energy Market Recap – Wrapping up May 2024

The energy markets have experienced notable bullish indicators throughout May. NYMEX natural gas futures for the prompt month settled at $2.75 per MMBtu (Million British Thermal Units), reaching a four-month high. Natural gas production has continued to decline, now at 97 Bcf (billion cubic feet) per day, down from 105 Bcf per day at the start of the year. Weather patterns have varied across the U.S., with the 8-14 day forecast predicting warmer temperatures in the western regions and cooler, milder conditions in the east. Experts are forecasting this summer to be among the top five hottest in the past 75 years, driving summer power generation demand to an all-time high of 32.1 Bcf per day this year. 

Bull Factors

-Many major natural gas producers in the country have reassessed their output in response to the excess supply in the market. In February, Chesapeake Energy Corp., one of the leading U.S. natural gas producers, announced additional production cuts in the second quarter, reducing output by 400 MMcf/d (Million Cubic Feet per Day) until demand rebounds. Following suit, EQT Corp. also declared a production cut in March. Their CFO emphasized that “The market is asking for not only production curtailments, but also activity reductions,” reinforcing a bullish outlook for natural gas markets. To address the surplus, EQT has lowered its production range by approximately 50 Bcf from earlier projections this year.

– Liquefied Natural Gas (LNG) exports have rebounded this month, with the Freeport, Texas terminal resuming operations after previous outages. Current LNG exports have reached approximately 13.1 Bcf per day, slightly surpassing the levels seen during the same period last year. As export volumes increase, more natural gas is being shipped out of the U.S., which could help reduce the current surplus in the market.

– As experts predict a hot summer, the demand for natural gas for power generation has averaged 32.1 billion cubic feet (Bcf) per day, an all time high year to date. This uptick indicates a strong demand outlook for the upcoming summer season, largely driven by the anticipated increase in air conditioning usage.
 
Bear Factors: 

-Natural gas storage levels continue to exhibit a surplus. For the week ending May 10th, there was a reported injection of 70 Bcf into underground storage. Current storage levels surpass those of last year and the 5-year average. As of the week ending May 24th, underground storage levels stand at 2,795 Bcf, which is approximately 421 Bcf higher than the same period last year and 620 Bcf above the 5-year average.

-In the short term, spring has brought milder temperatures, with alternating periods of warmer-than-expected and cooler conditions across the western and eastern regions. However, the summer outlook remains the critical factor that will significantly influence future price movements. For now, spring temperatures have kept prices relatively stable.

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Charts and graphs sourced from Constellation

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