Summertime Sadness - Is the Rangebound Summer Gas Market Heading for a Breakout?

The summer of 2024 proved somewhat melancholy for natural gas bulls, but also for bears, as front-month futures have consistently sported a $2 handle on the vast majority of trading days. What happened to the dire predictions of oversupply heard this past winter? And what about the bullish swing that took over the market in early June? Developments in production and weather have ameliorated both concerns but new issues may cause volatility to return in the near future. In today’s RBN blog, we’ll detail what happened during this summer’s gas market and what current trends portend for the fall and winter.

The domestic gas market was heavily oversupplied at the beginning of 2024. A historically mild winter was just wrapping up, and the initial start date for ExxonMobil and QatarEnergy’s Golden Pass LNG was pushed back for the first time. In the face of this slackening demand, production soared to unseen levels, hovering above 105 Bcf/d for most of early February. The loose gas balance (see Heat of the Moment) precipitated a sell-off in gas futures in February and the market languished in the doldrums below $2/MMBtu for much of the spring. However, shortly after the May contract reached final settlement at $1.614/MMBtu on April 26 (see Figure 1 below), market bulls became emboldened as producer discipline started to kick in. Predictions of hot summer weather also roiled the market and the front-month contract briefly surged as high as $3.129/MMBtu on June 11. But the bulls, too, would end up disappointed once summer truly got underway.

We’ll start our look back by focusing on production. Dry gas production in the Lower 48 averaged 102 Bcf/d in June, roughly 0.3 Bcf/d lower than the prior year’s June average — evidence of the successful pullback orchestrated by several major producers during the oversupplied winter period. Gas production in July came in nearly identical to the previous year’s figure, but by the time August rolled around production was 1.5 Bcf/d lower year on year. However, this was not the result of production declines during this summer — total dry gas production averaged just above 102 Bcf/d in June, July and August. Instead, it was the previous year’s upward slope of production that was not replicated, as upstream firms in 2023 had retained their optimism in the aftermath of 2022’s high-price environment. So the 0.6 Bcf/d year-on-year production change shown in Figure 2 below was created entirely by August’s deficit.