Models Align for Bearish Nat Gas Outlook Ahead of EIA Data

Natural gas futures are edging lower on Thursday shortly before the release of the government’s weekly storage report. The market is also trading on the weak side of an important technical level, which puts it in a position to challenge is mid-January and late December bottoms. The catalyst behind the selling pressure is a bearish alignment of the U.S. and European weather models.

At 13:38 GMT, March natural gas futures are trading $3.949, down $0.060% or -1.50%.

Energy Information Administration Weekly Storage Report

The EIA’s storage report for the week-ending February 4, due to be released at 15:30 GMT, is expected to show a 223 billion cubic feet (Bcf) draw.

Ahead of the report, Natural Gas Intelligence (NGI) reported Reuters polled 16 analysts, whose estimates ranged from withdrawals of 206 Bcf to 232 Bcf, with a median estimate of 223 Bcf. Projections in a Bloomberg survey were as light as 202 Bcf, with a median of 223 Bcf. NGI modeled a 211 Bcf withdrawal.

Inventories as of January 28 stood at 2,323 Bcf, which is 393 Bcf below year-ago levels and 143 Bcf below the five-year average, according to the EIA.

NatGasWeather said, “For today’s EIA weekly storage report, survey averages favor a draw of -221 to -223 Bcf, considerably larger than the 5-year average of -150 Bcf. It was colder than normal over much of the interior U.S., aided by a frigid Arctic blast diving down the Plains into Texas late last week, while warm versus normal over the West and East Coasts. We expect a draw of -226-227 Bcf, which if close would increase deficits to near -210 Bcf.”

Short-Term Weather Forecast

According to NatGasWeather for February 10-16, “Light national demand will continue another few days as most of the U.S. warms above normal with highs of 40s to 80s besides colder 20s to 30s over the Midwest as a fresh weather system arrives with rain, snow, and chilly highs of 20s to 30s.

This colder Midwest system will spread across the eastern ½ of the U.S. this weekend into early next week with widespread lows of -0s to 30s for strong national demand, although still mild to nice over the western half of the U.S.. Milder conditions will return over the East mid-next for light national demand.

Overall, national demand will be moderate-low through Saturday, high Sunday-Tuesday, then back to moderate-low.

Daily Forecast

A bearish tone is developing after NatGasWeather indicated the higher temperatures may prevent a significant deepening of storage deficits once the next two inventory reports are accounted for.

Technically, March natural gas futures are edging through a key technical support level at $3.964. This move could trigger an acceleration into $3.629 over the short-run.

If traders can form a bottom on the strong side of $3.964 then look for the creation of a support base with $4.378 the next potential upside target.