U.S. natural gas futures started the trading week lower Monday, losing 1.2% to settle at $3.082 per million British thermal units on the New York Mercantile Exchange. Traders focused on a sharp reversal in short-term weather outlooks rather than on the U.S.-Iran agreement that is expected to de-escalate the Middle East conflict.
“The strait has little to do with it as bearish weather for the next two weeks have trimmed back power-sector demand projections from where they were last week,” Gary Cunningham of Tradition Energy said in a note. “The remainder of the month is now projected to have near-normal temperatures for everywhere east of the Rockies, a far different picture than we had just a few days ago.”
The shift in forecasts is a significant change from the pattern that had supported gas prices in recent weeks. After a stretch of above-normal temperatures that boosted demand for gas-fired electricity for air conditioning, the latest outlook calls for seasonable readings across most of the eastern half of the country. That reduces the need for power-sector consumption and eases pressure on the market.
The geopolitical backdrop — including the U.S.-Iran agreement that helped send oil prices lower last week — did not drive natural gas trading on Monday, Cunningham said. While a de-escalation in the Middle East could reduce the risk of a disruption to global energy flows through the Strait of Hormuz, traders in the natural gas market judged that the immediate weather outlook was the more powerful price driver.
Nymex natural gas had climbed earlier in the spring on a combination of rising cooling demand and concerns about supply availability. The latest price retreat underscores the degree to which short-term temperature forecasts remain the dominant factor in gas market movements during the summer months, even as broader geopolitical events roil oil markets.