Natural Gas Futures Slip Ahead of EIA Weekly Storage Report

Key Takeaways

• EIA report expected to show high withdrawal, but storage levels to remain high
• High production and low demand continue to weigh on market
• Technical analysts call for bottom, but fundamentals remain bearish

Overview

Natural gas futures are edging lower on Thursday, shortly before the release of the weekly government storage report at 14:30 GMT.

The market is also trading inside yesterday’s volatile range, which produced a technical closing price reversal bottom. The price action was likely fueled by traders rolling over from the expiring April futures contract into the May futures contract but some “expert” technical analysts are calling for a bottom.

At 11:17 GMT, May natural gas futures are trading $2.148, down $0.036 or -1.66%. On Wednesday, the United States Natural Gas Fund ETF (UNG) settled at $6.90, up $0.07 or +1.02%.

Bearish Fundamentals and High Production Dampen Short-Term Rally Prospects

We could see a short-covering rally, but it’s risky to just rely on technical factors at this time since the fundamentals are overwhelmingly bearish, led by high production and low demand. Furthermore, this isn’t like last year when huge demand from Europe threatened U.S. supply ahead of the summer heating season.

Any technically induced rally is likely to become another shorting opportunity if production remains high and demand low. A strong technical buy signal combined with a shift in the fundamentals to bullish will be a good combination for a sustained rally. However, with winter ending and producers getting ready to inject gas into storage, stubborn bulls are going to have to wait until summer heating demand returns.

Remember that there is a huge difference between a short-covering rally and a bull market.

Energy Information Administration Weekly Storage Report

On Thursday, the U.S. Energy Information Administration (EIA) is scheduled to release its latest inventory assessment for the week that ended on March 24th, and the market is expecting an uncommonly positive outcome.

As of Wednesday, Reuters reported withdrawal estimates ranging from 48 Bcf to 61 Bcf, with a median draw of 54 Bcf. Bloomberg’s poll showed a similar range and a median pull of 55 Bcf. The Wall Street Journal found an anticipated average decline of 56 Bcf, with a range of 52 Bcf to 63 Bcf.

NGI modeled a 57 Bcf withdrawal, which is significantly higher than the five-year average decline of 17 Bcf. Despite this, storage levels are expected to remain high. The EIA’s report for the week that ended on March 17th showed a withdrawal of 72 Bcf, bringing inventories down to 1,900 Bcf, but still leaving supplies well above the five-year average of 1,549 Bcf, as McClain pointed out.