US Weather Forecasts Push Natural Gas Prices Lower

Natural gas prices continued their downward trend on Tuesday, closing at a 3-month low. The August Nymex contract (NGQ26) fell by -0.105 (-3.79%) to $2.86 per million British thermal units (MMBtu). Cooler US weather forecasts are the main driver behind this decline, with models indicating normal to below-normal temperatures across the central and eastern regions through August 5.

The Commodity Weather Group's outlook has reduced the need for air conditioning in these areas, putting downward pressure on natural gas prices. In the medium term, speculation about a powerful El Niño weather system could further reduce heating demand during the fall and winter months, potentially keeping prices low.

However, some data suggests that US natural gas production is increasing, which may have bearish implications for prices. According to BNEF, lower-48 state dry gas production rose by 1.9% year-over-year (y/y) to 112.3 billion cubic feet per day (bcf/day). Meanwhile, electricity output in the US has been rising, with a 2.0% y/y increase in the week ended July 18, as reported by the Edison Electric Institute.

As of July 25, gas storage in Europe was at 55% capacity, lower than its 5-year seasonal average of 71%. This could also contribute to downward pressure on prices, as excess supply may lead to increased exports and lower demand. With these factors in play, natural gas prices are likely to remain under pressure in the near term.