Natural Gas News: Analysis Shows Storage Below 5-Year Average Overshadowed by Warm

Storage Deficit Sparks Rally Before Reversal at 50-Day Moving Average

Natural gas futures are trading lower at mid-session Tuesday and well off the session’s early high. The early rally was likely an overnight reaction to Monday’s weekly government storage report that flipped supply to deficit versus the five-year average.

The report itself was lower than the forecast, but for intermediate term traders, the deficit news was more important. From my experience, it means the market is going to be more sensitive to weather news throughout the winter, which could produce bigger rallies.

At 17:57 GMT, February Natural Gas Futures are trading $3.961, down $0.025 or -0.63%.

Near-Term Cold Snap Yields to Warmer 8-15 Day Outlook

Also contributing to the volatility was inconsistent weather reports. NatGasWeather predicts chilly weather systems across the Midwest, Ohio Valley and Northeast over the next six days. The rest of the U.S. should see normal temperatures although pockets of cold could hit Texas and parts of the South. Expect moderately-high demand the next six days, then light.

Going out further, the 8-15 day forecast is too warm to sustain a breakout rally in my opinion. This is the period that professional hedgers look at.

50-Day MA at $4.157 Caps Rally as Reversal Momentum Builds

We saw that on the daily chart this morning when the rally spiked into the 50-day moving average at $4.157, coming to a halt at $4.176 before turning lower for the session just minutes ago. The momentum created by this sudden reversal has put the retracement zone at $3.822 to $3.738 back on the radar.

On the upside, the resistance is the 50-day moving average, followed by a longer-term pivot and the 200-day moving average at $4.354.

EIA Reports -166 Bcf Draw as Inventories Fall Below Five-Year Average

As far as supply is concerned, on Monday, the U.S. Energy Information Administration (EIA) reported that inventories fell -166 Bcf for the week ended December 19. Traders were looking for -169 Bcf. Nonetheless, it was a larger decline than the five-year average of -110 Bcf for the week.

Additionally, natural gas inventories were down -3.3% year/year and were -0.7% below their 5-year seasonal average, signaling tight natural gas supplies. As of December 27, gas storage in Europe was 64% full, compared to the 5-year seasonal average of 75% full for this time of year.

Technical and Fundamental Forces Clash as Traders Shrug Off Deficit

What does it all mean? From a technical perspective, it means that resistance is strong with traders maintaining the “sell the rally” mentality. It means that professional traders are watching the warmer 8-15 day period, which is bearish. It means that traders may be shrugging off the storage deficit until colder weather forces them to pay attention to it.

More Information in our Economic Calendar.