Natural Gas News: 5-Day Rally Lacks Conviction as Shoulder Season Caps the Market

Fifth Day Higher, Still No Conviction

May Nymex Natural Gas is on track to close higher Tuesday for a fifth consecutive session. That’s the good news. The bad news is the move has been slow and methodical and hasn’t been confirmed by any meaningful supply or demand numbers. Price is leading the way right now. That’s not a strong foundation but it’s something.

Shoulder Season Is the Ceiling

We’re one month into spring and less than that into the shoulder season. Production is somewhat restrained and that’s the only reason prices aren’t sliding. Neither heating nor cooling demand is strong enough to do anything meaningful right now. Updated forecasts are leaning neutral to slightly bullish but that’s just enough to keep prices from falling, not enough to push through resistance. A solid storage injection is expected and traders already know it. When supply buffers are comfortable nobody is in a hurry to bid prices higher.

LNG and Base Building

LNG export flows are providing a steady floor while domestic consumption softens with warmer temperatures. The Iran noise is background support at best. It’s not moving natural gas in any meaningful way. I’ve seen this pattern before. Slow methodical price action chasing weak shorts while attracting a few new speculative buyers. It’s not exciting but this type of base building is often a precursor to bullish news. A push toward $3 is possible but summer heat is still two months away. Most good rallies start with a support base. At least we have that.

Technical Outlook

May natural gas futures are in a position to close higher as they continue the base-building process. The slow methodical trade has been chasing some weak shorts while attracting some new speculative buyers. Right now price is doing the heavy-lifting since we really haven’t seen any confirming numbers on the supply or demand side. However, this type of base-building is often a pre-courser to bullish news, but one has to be patient since we’re only one month into Spring and less-than that into the shoulder-season.

Technically, the main trend is down, but the five-day rally has turned $2.561 into a new main bottom. A trade through that level will signal a resumption of the downtrend. The new minor top is $2.746. Taking out this level will change the minor trend to up and shift the momentum to the upside.

Other signs of potential strength will be crossing to the strong side of a pivot at $2.725 and breaking out over the long-term downtrend line at $2.725. Taking out these levels will likely trigger a wave of short-covering that could drive prices into the major resistance, the 50-day moving average at $2.925.

Unfortunately, that could be where the rally stops because that’s the nature of beast. Most traders buy dips in other markets, looking for price appreciation. In natural gas, professionals are looking to short rallies because of the abundance of supply and predictable demand. But be patient, the summer heat is set to arrive in just under two-months. So, if you’re looking for a prolonged rally, be patient. Most good rallies begin with a support base and at least we have that going for us.

More Information in our Economic Calendar.