Not only is output in the region an issue, but what little is being produced is having trouble reaching European and Asian customers because of the closure of the Strait of Hormuz. In my opinion, this situation could gradually boost demand for U.S. exports as buyers search for alternative supply sources.

Recent data showed that weekly LNG flows have already risen 2.7%, showing early signs of stronger export activity, but this amount represents maxed out capacity. To put it another way, the U.S. can’t meet all the new demand from Europe and Asia because it doesn’t have enough LNG plants, and what it has is producing as fast and as much as it can. The only solution is to build new LNG plants.

So what we have is a situation where despite these supportive factors, they haven’t been strong enough to offset domestic oversupply. And that’s usually bearish for prices, especially at this time of year, when domestic demand is low and production is high. The current bearish price action actually shows that the U.S. market is treating the global disruptions as a longer-term story rather than an immediate bullish rally driver.

Record Production and a Rising Rig Count Are Keeping a Lid on Prices

Domestic supply remains the biggest obstacle for any sustained rally by the near-term futures contract. In this current data driven market, U.S. dry gas production is holding at 111.8 bcf per day, up 4.7% from last year and threatening record highs. Prices are currently challenging the low of the year because steady output keeps storage levels elevated and caps rallies.

Another factor contributing to the bearish outlook is this week’s rise in the rig count. Baker Hughes reported that the rig count rose to 130 this week. What this means is producers are expanding activity even in a low price environment. Additionally, the U.S. Energy Information Administration (EIA) upwardly revised its production forecast. This served as further proof that supply will keep increasing over the near-term.

Shoulder Season and Injection Season Arrived at the Same Time

And let’s not overlook the bearish seasonal factor either. We just entered the shoulder season, which typically means weaker demand. This bearish outlook could continue into late May. Last week on April 1, the injection season began too, so storage is expected to build, further pressuring prices.