Natural Gas News: Bearish Forecast as Inventory Builds Pressure Futures

Natural Gas Hits New Lows After Bearish Storage Report

May Nymex Natural Gas is sharply lower Friday and the weekly storage number finished off whatever bullish argument was left. A 103 Bcf injection above expectations and more than 7% above the five-year average is not a number that supports a rally. Keep reading for the key levels and what it would actually take to change this setup.

Bears in Control After Key Levels Fail

May Nymex Natural Gas futures are sharply lower late Friday after taking out the recent main bottom at $2.561. More downside could be expected now that another main bottom at $2.514 failed as support. The momentum the past two days suggests we could even see a move into the $2.405 to $2.340 area over the short-run.

The nearest resistance is a trend line at $2.722 and the swing top at $2.763. The swing top is more important. Taking it out will change the main trend to up and could trigger an acceleration into the 50-day moving average at $2.897.

Those are great targets but without a solid support base, we’re not likely to see a meaningful breakout through these levels. Rallies are likely to be sold until we see some summer heat, and that may be months away.

The Storage Number Ended the Debate

On Thursday, the EIA reported a 103 Bcf injection for the week ending April 17. That came in above estimates and well above the five-year average. Storage is now more than 7% above normal and this early in the injection season that number puts a ceiling on any rally attempt. When supply is running that far ahead of the seasonal baseline buyers have no urgency and sellers have all the ammunition they need.

Weather Isn’t Helping

Forecasts shifted warmer across the eastern U.S. through late April and that cut into what little heating demand was left. There is a colder pattern possible further out but the market is trading what’s in front of it right now. Mild temperatures and softening demand are what’s in front of it and the price action reflects that accurately.

Production Won’t Quit

U.S. output is holding near record levels around 110 Bcf per day and demand isn’t keeping pace. That gap is what keeps flowing into storage every week and it’s the reason this market stays on the defensive. Global LNG disruptions and stronger year over year power generation demand provide some background support but they aren’t enough to offset what domestic supply is doing to this market right now.

What Changes the Setup

Rallies are going to get sold until the storage picture tightens or summer heat demand shows up in the data. Neither of those is happening this week. The swing top at $2.763 changes the trend to up if taken out but getting there requires a catalyst that isn’t visible right now. Until something changes on the supply or demand side the path of least resistance stays lower.

More Information in our Economic Calendar.