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Bulls Battling for Cash While Bears Eye Bearish Future

U.S. natural gas futures experienced a volatile week, ultimately succumbing to bearish pressure. Prices initially climbed above $3/MMBtu on anticipation of scorching summer heat, but quickly retreated on whispers of increased production and a slightly less brutal heatwave forecast. This price decline in futures contrasted sharply with the cash market, where prices surged due to a scramble for supply ahead of the expected late-June heat spike.

Last week, natural gas futures settled at $2.881, down $0.037 or -1.27%.

Weekly Natural Gas

Last Week’s Recap: A Tale of Two Markets

While futures tumbled, cash markets boomed. This divergence highlights the conflicting forces at play. In the futures market, “bears” gained control as rising production and a tempered heat outlook signaled ample supply. Meanwhile, in the cash market, “bulls” dominated as natural gas users actively secured supplies for the upcoming heatwave, pushing spot prices higher.

Supply and Storage: A Bearish Bonanza

The recent bearish sentiment can be attributed to a confluence of factors. The EIA’s storage report revealed comfortable storage levels, exceeding both last year’s figures and the five-year average. Additionally, production in the Lower 48 states bounced back to a robust 100 Bcf/d, further bolstering the bearish case.

Weather and Demand: A Bullish Glimmer

Despite the bearish headwinds in futures, a potential silver lining exists for bulls. Forecasts predict a sweltering heatwave blanketing the southern US in the coming days, driving up demand for natural gas-fired power generation. This surge in demand could provide some support for cash prices.

Mountain Valley Pipeline: A Supply Disruptor or Damp Squib?

The long-awaited Mountain Valley Pipeline (MVP) is nearing completion, potentially adding 2.0 Bcf/d of additional supply to the market. However, some analysts warn that downstream pipeline constraints may limit the MVP’s immediate impact on summer prices.

Production Resumption Adds to the Mix

EQT, the nation’s largest gas producer, has resumed production that was previously curtailed. This additional supply, potentially flowing through the MVP, could further suppress prices in the near term. However, the full impact hinges on how quickly and efficiently this production increase can be integrated into the existing infrastructure.

Market Forecast: A Bearish Tilt with Bullish Reservations

With ample storage, rising production, and the MVP’s imminent arrival, the short-term outlook for natural gas futures leans bearish. However, the upcoming heatwave could inject some bullish life into cash prices. Ultimately, traders should keep a close eye on storage reports, pipeline developments, and weather updates to navigate the ongoing tug-of-war between bulls and bears.

This article was originally posted on FX Empire

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