the US cooling season is on

Natural gas price has bounced off Friday’s lows following the start of the US summer season. The supply/demand imbalance will likely sustain the uptrend in the new week.

Fundamentals

Profit-taking had US natural gas futures drop to an intraday low of $8.30 per million British thermal units (mBtu) on Friday after hitting a fresh 14-year high of $9.44 earlier in the week. In early Monday trade, it has recouped some of those losses to trade at $8.82 as at 06:56 a.m GMT.

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Natural gas price has surged by about 145% since the beginning of the year. Besides, since mid-April, $8.00 has been a crucial support level. Prior to that, the zone had been evasive since 2008. In the new week, I expect it to remain above the aforementioned level as the bulls remain in control. In the short term, the range between 8.62 and 9.03 will be worth watching. While the bulls have an opportunity to retest last week’s high, a move above the range’s upper border will likely place the resistance at 9.25.

Notably, weather is one of the influential factors in natural gas price movements. In the US, the summer season has began. Amid the heightened need for air conditioning, supplies remain below the five-year average.

Data released by the Energy Information Administration (EIA) showed that the US natural gas stocks are 327 billion cubic feet (Bcf) below the five-year average of 2,139 Bcf. Even after increasing by 80 Bcf in the week ending on 20^th May, the inventories are still 387 Bcf below the recorded amount a year ago.

Notably, heightened US LPG exports to Europe are also contributing to the tight supplies. As such, the supply/demand imbalance during this hot season will likely sustain natural gas price above levels that were previously evasive for over a decade.

Ordinarily, soaring natural gas price prompts a switch to coal or crude oil price. However, environmental pressures on coal have led to the closure of a significant number of plants within the US. Besides, surging crude oil prices have meant that the demand for natural gas remains high despite it being expensive.