Natural Gas News: Bearish Chart Break Signals More Losses Ahead After 8% Drop

Natural Gas Plunges 8% as Winter Demand Season Ends

Monday’s gap lower opening on the natural gas daily chart may have sent a signal to traders that the winter demand season is over. In addition to the price action, the move put the market on the weak side of a key retracement area and a pair of moving averages. This creates numerous headwinds that could stop any short-covering rallies. Meaning, it’s going to take a late-season cold front and a huge jump in demand to get the bullish ball rolling again. In the meantime, most traders are looking down and seeing nothing but clear space to the major support established during the first half of January.

On Monday, March Natural Gas Futures settled at $3.138, down $0.284 or -8.30%.

Friday’s Forecast Shift Sealed the Market’s Fate

Friday’s events essentially sealed the market’s fate, but it took the weekend reports to indicate that winter’s strongest time period is now history. On Friday, the forecasts turned warmer and the rig counts jumped. So essentially, we’re looking at a classic low demand, high supply situation.

The price action also suggests that traders aren’t concerned about the small deficit in storage against the 5-year moving average. They feel that the expected increased production will make that up quickly and well before the summer cooling season. This explains the muted reaction to last week’s massive government storage draw.

Record 360 Bcf Draw Gets Ignored

Last Thursday, the Energy Information Administration (EIA) reported in its weekly storage report for the week ended January 30. The government reported a record 360 Bcf draw, smaller than the consensus estimate but well above the 5-year weekly average draw of -190 Bcf. That massive draw put storage 1.1% below the 5-year seasonal average. The results signaled tighter natural gas supplies, but traders didn’t flinch. They knew higher production and warmer temperatures were coming because their focus is always 10-15 days forward. Let the amateurs react to the headlines, they were probably saying—we need someone to sell it to for the long run.

Warm Weather Through February 20

As far as the weather is concerned, NatGasWeather.com sees national demand lower over the next seven days. The Commodity Weather Group said Monday that above-average temperatures are expected across the Midwest and South through February 20. To go along with this, on Friday, Baker Hughes reported that active U.S. natural gas drilling rigs jumped to a 2.5-year high, an obvious warning of higher gas production.

Technical Outlook: Multiple Headwinds in Place

Technically, March natural gas futures are trading on the weak side of a Fibonacci level at $3.284, which is the first resistance. The second level of resistance is the 200-day moving average at $3.379, followed by the 50-day moving average at $3.502.

On Monday, the selling took out the last swing bottom at $3.155, opening the door to a possible extension of the selling into a pair of bottoms at $2.595 and $2.578.

More Information in our Economic Calendar.