in the United States fell to $3.40/MMBtu, the lowest level in six weeks, due to increased production and subdued demand. Mild weather conditions reduced heating and cooling needs, favoring above-normal storage injections.
On the supply side, average gas production in the 48 contiguous states increased to 105.9 bcfd in June, compared to 105.2 bcfd in May. In addition, LNG export demand weakened, with flows to the eight major US export terminals averaging 14.3 bcfd in June, down from 15.0 bcfd in May.
The European gas market is also experiencing a significant downturn. European natural gas futures fell more than 10% to €33.3 per megawatt hour, reaching their lowest level in over a week, following the announcement of a ceasefire between Iran and Israel by US President Donald Trump.
The Importance of Weather Conditions
Meanwhile, weather forecasts indicate a mixed picture across Europe. A heatwave is affecting the southern and western regions of the continent, with temperatures reaching 40°C in Madrid and 36°C in Zagreb, likely increasing electricity use for cooling. However, cooler and stormy conditions are expected in the Nordic countries and Eastern Europe due to a low-pressure system extending from Germany to the Baltic States.
The situation continues to deteriorate, with high production generating a surplus of supply on the market. This scenario could lead to new historic lows in prices, especially if the summer turns out to be cooler than expected. Analysis of the futures curve also provides negative indications. The curve is in a state of amplified contango, which occurs when demand is weak and supply is excessive.
Production is High
The shape of the futures curve is of considerable importance to speculators and investors seeking to mitigate risk through the purchase of commodities. It provides relevant indications of both the current state of the commodity market and its future prospects.
From a technical standpoint, the situation is negative: recent declines have been accompanied by above-average volumes, and prices are below the 200-period moving average. In light of this, we do not recommend buying natural gas, as prices are expected to reach new historic lows in the coming months.
However, it is important to consider that there is a current condition that could favor energy sector commodities.
The US dollar continues to weaken. Therefore, if I were to buy an energy sector commodity right now, I would opt for oil. Oil is generally priced in dollars on international markets, which means that when the value of the dollar falls, the price of oil tends to rise. This dynamic occurs mainly because a weaker dollar makes oil less expensive for buyers using other currencies, thus increasing demand and, consequently, the price.
The importance of a Weak Dollar
In addition, geopolitical events, such as conflicts in oil-producing regions, can affect both the price of oil and the value of the dollar. For example, tensions in the Middle East can lead to higher oil prices.
It is essential to monitor the geopolitical situation in the Middle East on a daily basis and analyze oil inventory data on a weekly basis to understand whether the market will continue in its current deficit phase. I expect a prolonged sideways phase for oil prices; therefore, it may be appropriate to invest in an undervalued oil sector stock that distributes dividends.