After eclipsing the $6.00 threshold, natural gas futures showed no signs of slowing down in early trading Wednesday, advancing further against a backdrop of strong demand and supply adequacy concerns.
Coming off a 32.0-cent rally in the previous session, the May Nymex contract was up another 34.5 cents to $6.377/MMBtu at around 8:45 a.m. ET.
Bespoke Weather Services characterized recent price action as a call on supply, pointing to data as of Tuesday showing a decline in domestic production.
“There continues to be no top in the natural gas market, with the strong rally continuing this morning,” Bespoke said “…At this point, it’s more about momentum, and it is hard to see how we do not test the $6.35-6.50 prompt month resistance zone, as the market is clearly saying it wants more out of the supply side, and soon.”
Should production growth fail to materialize to ease supply adequacy concerns in the market, “there is tons of air above for prices to keep moving higher, as increasing prices does little to impact the demand side of the equation at this stage,” Bespoke said.
Still, a “sudden jump” in supply could see prices reverse quickly, according to the firm.
Even with futures rallying above $6.00, analysts at Tudor, Pickering, Holt & Co. (TPH) said in a note Wednesday they still see a “combination of factors” pointing to upside risks for prices.
On the demand side, forecasts have driven modest increases in residential/commercial demand moving into the shoulder season. This comes as demand in the power sector has outpaced historical levels, according to the TPH analysts.
“From a supply perspective, while the Permian Basin has recently made new highs, encroaching on the 15 Bcf/d threshold before moderating to kick off the week, overall supply has remained constrained relative to our expectations into the shoulder season thus far,” the TPH analysts said.
With the risk of a “delayed ramp-up” in production and “robust demand” as the year progresses, “we see continued potential upside pressure for pricing,” they said. This reflects “limited demand destruction…in the present gap above historical pricing levels as the U.S. remains at the low end of various global cost curves.”
What’s more, there remains “increasing potential” for growth in liquefied natural gas exports that would support balances in 2023 and beyond, the TPH analysts added.
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