Natural Gas Fundamental Analysis, Week of March 20, 2017

After a strong start to the week with a gap higher opening, the buying dried up in the natural gas market as professional sellers ignored the current weather developments and started to focus on the future weather pattern.

May Natural Gas futures closed the week at $3.004, down 0.070 or -2.28%.

Although cold weather and snow storms hit the country from the Midwest to the East Coast, the bulk of the storms missed the highly populated areas which would’ve led to a huge jump in heating demand. This was a disappointment to speculators who had bet heavily on the thought that a massive storm in New York City, for example, would’ve led to a big jump in natural gas usage. When the storm failed to satisfy speculators, they took profits, sending prices lower into the end of the week.

Prices were also pressured by a weaker-than-expected government report. According to the U.S. Energy Information Administration (EIA), natural gas stocks decreased by 53 billion cubic feet for the week-ending March 10. Analysts were expecting a storage decline of 56 billion cubic feet.

The EIA data also showed the five-year average for the week is a withdrawal of around 85 billion cubic feet, and last year’s storage decline for the week totaled 9 billion cubic feet.

Additionally, stockpiles fell week over week to 9.5% below last year’s level, and they reached 21.4% above the five-year average.

Finally, the EIA reported that working stocks of natural gas totaled about 2.242 trillion cubic feet, around 395 billion cubic feet above the five-year average of 1.847 trillion cubic feet and 236 Bcf below last year’s total for the same period. Working gas in storage totaled 2.478 Tcf for the same period a year ago.

Forecast

Technically, the main trend is down and the recent three week rally was basically a 50% to 62% retracement of this year’s earlier sell-off. The charts indicate solid resistance at $3.122 to $3.170. Last week’s high stopped at $3.149.

On the downside, the key area to watch is $2.943 to $2.894. Trader reaction to this zone will determine the market’s next move. If its holds as support then don’t be surprised by a technically driven retracement rally. If $2.894 fails as support then we could see a retest of the $2.737 over the next several weeks.

As far as the weather is concerned, demand for natural gas is expected to be moderate over the eastern United States following last week’s unseasonal snowstorms. Temperatures are expected to moderate over the weekend before dropping again by the middle of next week, pushing demand for gas higher.

Natgasweather.com says overall, natural gas demand will be moderate through Monday, increasing to high Tuesday and Wednesday this week.

Based on this weather forecast, we could be looking at a week highlighted by a choppy, two-sided trade.

Remember that the rallies are short-covering and should be short-lived because each price rise is likely to draw the attention of hedgers and aggressive short-sellers.