Natural Gas News: Bearish Forecast as Inventory Report Pressures Market

Natural Gas Wipes Out All of Winter Storm Fern’s Gains

U.S. nearby natural gas futures dropped to their lowest level since January 16 on Thursday, which means all of the gains from winter storm Fern has been wiped out. This opens the door for a test of the January 15 main bottom at $2.689.

After that bottom, the market surged to a January 30 top at $4.075. It took three months to take it all back, but this just proves the resilience of a market influenced by a combination of weak demand and strong production. This is expected to continue during the shoulder season, which began in mid-March and is expected to end in late May. Additionally, the injection season began on April 1. Based on the current conditions, it looks as if the market is likely to continue its bearish tone until the summer heating season begins.

On the upside, resistance is a swing top at $3.060, a trend line at $3.067 and the 50-day moving average at $3.120. With the main trend down, it looks as if we’re still in “sell the rally” mode. Short-covering rallies are possible but don’t expect them to last. Technical resistance and bearish fundamentals are going to cap any rally worth mentioning.

The front-month May Natural Gas futures contract settled at $2.800, down $0.019 or -0.67% on Thursday.

Bearish Storage Data and Weak Demand Are Running the Show

The storage data was bearish and demand signals were soft. Global supply risks offer some support on paper but the near-term picture is being controlled by strong production and a market that simply doesn’t need more gas right now.

On Thursday, the latest U.S. Energy Information Administration (EIA) storage report put a cherry on top of this bearish week. It reported a 36 Bcf injection for the week-ending March 27. The number was well above the five-year average draw of -4 Bcf for the same week, signaling that supply is building faster than normal for this time of year.

The EIA report also showed inventories are now running +5.2% above last year and +3.0% above the five-year average. This is further confirmation that the U.S. market is well-supplied as we start injection season. What does it mean for traders? In my opinion, it means that any rallies will probably be capped unless demand surprises to the upside. This is because storage is the clearest bearish driver right now.

Warm Weather Across the East Is Killing Late-Season Demand

Lastly, the weather also continues to lean bearish. The latest forecasts are offering no relief either with above-average temperatures across the Eastern half of the U.S. through early April, expected to reduce late-season heating demand. I’ve seen it before over the years, this is the key factor during this transition out of winter, when demand can quickly drop off. This kind of reflects what we saw in the market this week.

The Bear Case Is Intact Until Something Changes

Looking ahead, our near-term bias is bearish. Storage builds, weak demand, and elevated production are expected to outweigh even global supply risks caused by the closing of the Strait of Hormuz, due to the war between the U.S. and Iran. Until the weather turns cold or LNG exports make a meaningful jump, this market has no reason to rally.

More Information in our Economic Calendar.