Natural Gas News: Weather Change Fuels Bear Market Short-Covering Rally

Natural Gas Market: Supply Constraints and Demand Fluctuations

The natural gas market recently saw a slight uptick in futures, despite closing lower for the week, month, and quarter. Key factors include forecasts for increased demand, a higher-than-expected weekly storage withdrawal, and ongoing supply challenges.

On Thursday, US Natural Gas ended the week at $1.763, up $0.045 or +2.62%.

Market Fluctuations and Storage Withdrawals

U.S. natural gas futures rose modestly, bolstered by anticipations of elevated demand and a storage withdrawal of 36 billion cubic feet (bcf), surpassing analyst expectations. This withdrawal contrasted with last year’s 55 bcf decrease and a five-year average decline of 27 bcf. Despite these factors, mild weather predictions and substantial storage levels have exerted downward pressure on prices.

Production and Spot Market Factors

Natural gas production dipped by approximately 3%, influenced by reduced drilling activities from firms like EQT and Chesapeake Energy. This decline accompanies a record low in next-day power prices in the U.S. West, driven by mild weather and abundant renewable energy supplies.

Supply and Demand Balance

March saw a decline in gas output to 100.2 billion cubic feet per day (bcfd), down from February’s 104.1 bcfd. Concurrently, gas demand, including exports, is projected to decrease from 113.4 bcfd to 106.2 bcfd. Additionally, flows to LNG export plants have diminished, contributing to a complex supply-demand scenario.

Drilling Activities and Rig Counts

Recent data from Baker Hughes indicates a reduction in oil and natural gas rigs, marking the first consecutive weekly drop since mid-January. The total rig count has fallen by 18% from the previous year, signaling a cautious approach by energy firms amidst fluctuating market conditions.

Short-term Market Forecast

In the short term, natural gas markets are poised for volatility. The combination of reduced production, fluctuating demand, and the ongoing impact of mild weather patterns suggests a bearish outlook. Traders should brace for potential price fluctuations, keeping a close eye on both domestic production changes and global market developments. The intricate balance between supply constraints and demand shifts will be pivotal in shaping price movements in the coming weeks.

Technical Analysis

The main trend is down, but Thursday’s potentially bullish closing price reversal bottom chart pattern may be signaling the start of a short-covering rally. Nonetheless, the market will remain in “sell the rally” mode as long as it remains under the 50-day moving average at $2.044. This indicator is controlling the intermediate trend, which is bearish.