NatGas: Nearing $6.762 – $6.423 Value Zone Ahead of EIA

U.S. natural gas futures are edging higher shortly before the release of the government’s weekly storage report at 14:30 GMT. This move follows yesterday’s more than 3% decline and Tuesday’s 8% tumble.

The catalysts behind this week’s selling pressure are forecasts calling for a turn to slightly warmer weather that could dent demand for the fuel to heat homes and businesses.

At 12:50 GMT, June natural gas futures are trading $7.102, up $0.037 or +0.52%. On Wednesday, the United States Natural Gas Fund ETF (UNG) settled at $23.99, down $1.00 or -4.00%.

Short-Term Weather Outlook

According to NatGasWeather for April 20-26, “The northern U.S. will be mild to cool again today as weather systems track through with scattered showers and chilly highs of 40s and 50s, lows of 20s and 30s for stronger versus normal national demand.

The Southwest into Texas will be very warm to hot with highs of mid-80s to 90s.

A warmer pattern will set up across the eastern U.S. Thursday-Monday with highs of 60s to 80s for lighter than normal demand besides locally hotter 90s.

A return to strong versus normal demand will return mid-next week as cool weather systems return across the northern U.S.

US Energy Information Administration Weekly Storage Report

Traders are looking for today’s EIA weekly storage report to show utilities injected about 37 billion cubic feet (bcf) of gas into storage during the week-ending April 15. This compares to a 42 bcf injection recorded during the same week of last year, as well as on the five-year average.

Going into the report, Total Working Gas in storage as of April 8 stood at 1,397 bcf, which is 439 bcf below last year and 303 bcf below the five-year average.

Daily Forecast

Despite this week’s weakness, we still think June natural gas futures has enough juice in it to retest this week’s multi-year high at $8.197.

Technically, the main trend is up. Even with the three-day sell-off, we can’t determine with certainty that momentum has turned lower.

Our work suggests that value-seeking buyers are likely to return on a test of a retracement zone at $6.762 to $6.423. If they can’t get the price they want then they may be forced to buy a breakout over the 50% level at $7.546.

Our assessment is being supported by both Bespoke Weather Services and NatGasWeather.

According to Bespoke, “until production shows up more convincingly, the risk of higher prices is still alive and well, with an ultimate move back over the $8.00 level still very much in play.

While Bespoke was looking at production, NatGasWeather was saying the pattern remains “cold enough to satisfy for a bullish lean” between next (next) Tuesday and May 3, with “chilly late-season weather systems” expected to move over the northern Lower 48, delivering lows in the 30s.

Overall, the pattern should generate enough weather-driven demand through early May to keep the year-on-five-year average inventory deficit “near to slightly larger than minus 300 Bcf,” the firm added.