Production is the reason those injections keep coming in heavy. Lower-48 dry gas output is running at 111.6 bcf per day, 4.2% above last year, and the EIA just raised its forecast for next year’s production to 111.2 bcf per day. Demand is going the wrong direction. Lower-48 consumption dropped to 76.2 bcf per day, off 4.9% year over year, while LNG feed gas deliveries fell to 18.4 bcf per day, down 3.7% week over week.
Summer electricity generation climbed 7.73% year over year for the week ended July 4 according to the Edison Electric Institute, but power demand alone is not big enough to close that gap. And a strong El Niño forecast is stacking the risk further out. A warmer-than-normal fall and winter would cut into heating demand right when the market normally starts drawing down storage.
Europe’s Supply Gap Is the Bullish Wildcard
European gas storage at 50% is fifteen points below where it normally sits this time of year. Utilities over there still have a lot of buying to do before winter, and the list of sellers they can call is getting shorter.
Trump killing the Iran ceasefire brought Persian Gulf shipping risk back into the conversation. Ras Laffan is still running below full capacity after the attacks, and repairs on that facility are measured in years, not months. If Gulf transit tightens on top of that, European buyers don’t have many places left to turn. U.S. LNG becomes the market of last resort, and that kind of competition for cargoes would hit domestic storage builds directly.
But here’s the disconnect. The weekly feed gas data doesn’t show any of that buying yet. Deliveries actually fell last week. Until that European pull starts showing up in the numbers, the domestic surplus is what traders are pricing.
What to Watch
Thursday’s EIA number sets the tone. If the injection comes in at 61 bcf or higher, the surplus story stays intact and sellers have no reason to cover. Output is running 4.2% above last year with no sign of slowing down, consumption is falling year over year, and inventories are already 6.4% above the five-year average.
Stack El Niño on top of that and the winter demand case gets even harder to make. Warmer temperatures through the fall would delay the seasonal drawdown the bulls are counting on. The only force that reverses the direction is Europe’s storage deficit pulling U.S. LNG exports higher, and the feed gas data says that pull has not started.
The 50-day moving average is holding for August, and that keeps a short-covering bounce toward the minor tops alive. Sellers have been defending that area all month. February already confirmed its downtrend when the late May bottom broke. Longer-term money is pricing in plenty of winter supply. Losing the 50-day on August opens the path toward $3.00.
More Information in our Economic Calendar.