Natural Gas Forecast: Futures Plunge to Multi-Year Low on Oversupply Concerns

Highlights

• Below $2 due to shoulder season balances
• US government report indicates a near-normal injection into stockpiles
• Temperatures across the US will lead to slightly larger than normal builds

Overview

Natural gas futures are lower on Friday after testing another multi-year low earlier in the session.

There is no magic bullet fundamental factor that could turn prices higher quickly, but due to the prolonged move down in terms of price and time, the market is trading inside the window of time for a potentially bullish closing price reversal bottom.

At 13:26 GMT, May natural gas futures are trading $1.991, down $0.016 or -0.80%. On Thursday, the United States Natural Gas Fund ETF (UNG) settled at $6.41, down $0.24 or -3.61%.

Early Friday trading saw natural gas futures drop below $2 as shoulder season balances indicate an oversupply and summer cooling demand is still weeks away.

On Thursday, U.S. natural gas futures fell by over 4% due to predictions of reduced fuel demand in the coming week, as well as a U.S. government report indicating a near-normal injection into stockpiles.

Short-Term Weather Forecast

From April 13-19, most of the US will have comfortable weather with highs in the 60s to 80s. The Southwest deserts will be exceptions with highs in the 90s, while the Northwest will be cooler with highs in the 50s.

The Southeast will experience heavy showers with highs in the 70s. From Mon-Wed, a cooler system will track across the northern US, causing moderate demand with lows in the 20s to 30s.

Maxar’s Weather Desk predicts cooler trends in the Interior West and central Lower 48 during the six- to 10-day time frame due to low pressure tracking from the Rockies to the Midwest.

The Eastern Lower 48 will experience cooler temperatures in the 11- to 15-day time frame, while the Mid-Atlantic will have warmer temperatures with highs expected to be above average.

The cooler air mass will progress eastward during the early half of the 11- to 15-day period.

Weekly EIA Storage Report

The EIA reported a 25 Bcf injection into U.S. natural gas storage facilities for the week ending April 7. This raised Lower 48 stockpiles to 1,855 Bcf and 18.9% higher than the five-year average.

Although utilities injected a near-normal 25 Bcf of gas, it was less than the five-year average rise of 28 Bcf. And significantly lower than the same week last year.

Despite early upward momentum, the natural gas market remains below $2.50/mmBtu. Gelber and Associates predict that slightly larger than normal builds will occur in the future due to warmer temperatures across the U.S.

Natural Gas Technical Analysis – Set Up for Closing Price Reversal Bottom

Technically speaking, the main trend is down according to the daily swing chart. Taking out the main top at $2.241 will change the trend to up. If the move creates enough upside momentum then look for a surge into the short-term retracement zone at $2.368. A trade through the intraday low at $1.946 will signal a resumption of the downtrend.

Due to the prolonged move down in terms of price and time, the market begins today’s session inside the window of time for a closing price reversal bottom. Therefore, trader reaction to yesterday’s close at $2.007 is likely to determine the direction of the May natural gas futures  contract into the close on Thursday.

A close above $2.007 won’t change the trend to up, but if confirmed on Monday, it could tirgger the start of a meaningful 2 – 3 day counter-trend rally with $2.368 the first target, followed by a resistance zone at $2.551 – $2.634.