Natural Gas Fundamental Analysis, April 21, 2017

Natural gas futures closed lower on Thursday after falling to nearly a one-week low in reaction to a weekly government inventories report.

The daily chart also indicates that despite the potentially bearish news, buyers continued to come in to defend the main bottom at $3.198, a price that I believe could be the trigger point for an acceleration to the downside.

According to the U.S. Energy Information Administration, natural gas stockpiles grew by 54 billion cubic feet in the week ended April 14, compared with the 49 Bcf expected by forecasters surveyed by The Wall Street Journal. Analysts polled by S&P Global Platts expected an increase of between 47 billion and 51 Bcf.

Total stocks now stand at 2.115 trillion cubic feet, down 368 Bcf from a year ago, but 282 Bcf above the five-year average, the government report showed.

Forecast

Fundamentally, the EIA report reinforced what investors have been saying all month that the supply is healthy at a time of limited demand. The 2.1 trillion cubic feet in storage is now 15% more than the five-year average for this time of year, according to the government.

So while the EIA report generated a bearish response, traders have to remember that it’s old news. Supporting the market on Friday could be a report of a colder weather system that will track over the southern and eastern U.S. Friday through Wednesday. This could help bring up demand.

Overall, natural gas demand is expected to be low into Thursday, then moderate to high Saturday through Tuesday.

Short-term traders should also pay close attention to the price activity at $3.198. If this price fails as support then we could see a massive liquidation back to at least $3.120.

Longer-term, the market is likely to be supported by surging demand from Mexico and reports of an extremely hot summer.