Mapping Out Where Natural Gas Is Going In The Near Term
Natural gas prices are falling apart again with the prompt month ready to test the psychological $2/MMBtu level at any time.
Source: CME
Looking at the curve, you can see the entire curve getting compressed with August to October trading at a steep discount to the winter gas months.
What's incredible about this is that the market is essentially screaming at natural gas producers to delay any production increases in the near term. With Lower 48 gas production now persistently averaging above ~102 Bcf/d, the price weakness in the near term is entirely expected. At the same time, we still believe the winter gas months are trading at too high of a premium.
Following last week's price drop, we published our latest production outlook amidst the current STRIP pricing. For August, we still expect Lower 48 gas production to average ~102.3 Bcf/d down from the 103+ Bcf/d level we previously expected.
For natural gas bulls expecting production curtailment to return, we think you will be very disappointed to hear that natural gas producers are fully capable of withstanding 2-3 months of lower pricing to take advantage of the $3+ gas prices in the winter months. We suspect something will have to give in the coming weeks.