With The Price Drop, We Expect Natural Gas Production Recovery To Stall
At the end of May, we published two reports titled, "A Self-Defeating Natural Gas Rally In The Making."
We pointed out at the time that with Henry Hub prices rapidly recovering back above $2.5/MMBtu, natural gas producers were on pace to meaningfully increase Lower 48 gas production back to ~102.5 to ~103 Bcf/d by July. This would eliminate the deficit we saw in the market today. In addition, with natural gas storage already bloated, any increase in production will result in worries over a surplus in storage going into winter, which would be bearish on prices.
Since then, Lower 48 gas production hit a high of ~102.7 Bcf/d last week, and Henry Hub is once again testing $2/MMBtu.
Henry Hub
Like all things natural gas, the market always tends to swing to extremes. These extremes become obvious to anyone who watches the market closely, and in this case, we think the price drop will meaningfully delay the production recovery we are currently seeing.