Natural Gas News: Bearish Forecast as Weather Weighs Despite Steady LNG Demand

Natural Gas Opens Higher Then Reverses as Bears Stay in Control

May Natural Gas futures opened the week higher, but quickly turned lower on Monday after posting another lower close last week. The loss marked the third straight week of lower highs and lower lows. Today’s early price action suggests that bearish traders are going to try to make it four in a row by taking out $2.825. This move will reaffirm the downtrend and put the late February low at $2.807 on the radar.

Technical Outlook

The close before the war between the United States and Iran started was $2.881. With anything above this level, one can argue it’s a war premium. Anything below it, means the war premium has been erased. Even a bigger sign of weakness will be a break under the last swing bottom at $2.807. This will reaffirm the swing chart downtrend. Trader focus will then shift to the January bottom at $2.689.

The two major bottoms I mentioned are tied to previous major events. The February bottom at $2.807 is related to the war. The January bottom is tied to the polar vortex and winter storm Fern. With traders naturally inclined to short rallies, the only hope for a rapid turnaround in this market is an unexpected major event related to the weather, an escalation of the war or perhaps domestic infrastructure damage to a Liquefied Natural Gas facility or a pipeline.

Weather Isn’t Helping and Neither Is the War

As far as the weather is concerned, natural gas was pressured by reports of milder temperatures throughout the month of March. Last Friday’s forecast shift to cooler-than-normal temperatures in some parts of the country, failed to generate any upside momentum. And sellers returned early Monday, hoping to ride warmer temperatures into the end of March.

The war itself hasn’t given natural gas the kind of boost that one would have expected if they were told a month ago, the war would last more than a month and that a major LNG facility in Qatar would sustain significant damage.

Qatar’s Ras Laffan Is Offline but the U.S. Needle Hasn’t Moved

The damage to Ras Laffan Industrial City may have taken 17% of Qatar’s LNG export capacity off the market for up to five years due to infrastructure repairs. On paper this sounds bullish but it has had little impact on U.S. natural gas prices so far in March. Demand for U.S. LNG is strong in Europe and Asia, but since the U.S. plants are operating at full capacity and it takes so long to deliver, it hasn’t moved the U.S. needle very much.

Storage Surplus and Injection Season Make a Tough Combination

Despite the strong LNG demand, the market conditions feel bearish. Not only because the trend indicators are pointing lower, but also because U.S. storage is already at a surplus and we’ve just started the injection season.

More Information in our May Natural Gas futures.