Natural Gas News: Bearish Market Ahead of EIA Inventory Report Today

Natural Gas Slides Ahead of EIA Report as Bearish Setup Takes Shape

May Nymex Natural Gas is sharply lower Thursday and the market is telling you something before the EIA storage number even hits the tape. Traders already know what’s coming and they’re positioned for it. Keep reading for the key levels and what the storage report needs to show to change anything.

Technical Outlook

May Nymex Natural Gas futures are sharply lower on Thursday, shortly before the release of the U.S. Energy Information Administration’s weekly storage report at 14:30 GMT. The early outlook is bearish with traders posting a lower-low when compared to yesterday’s price action and in turn, making $2.763 a new swing top.

The trend is down. However, the market appears to be building a support base, which is a strong sign that traders are recognizing value. The current support base is $2.561 to $2.763, with $2.662 the mid-point.

In this particular set-up, we’re anticipating a potential breakout to the upside. But given the nature of the natural gas market, we’re going to need a catalyst to spark the move.

Technically, the key breakout area today is a long-term trendline at $2.740. Overtaking this level will be the first sign of shifting momentum. The second sign of strength will be a breakout over the minor swing top at $2.763. This move will change the minor trend to up and actually shift momentum to the upside.

A strong breakout over $2.763 accompanied by higher than average volume is what we’ll want to see. This will signal that actual buying and short-covering are giving prices a boost. If it’s strong enough the rally should carry us into the 50-day moving average at $2.910.

The 50-day MA is important so watch the price action and read the order flow if it is tested, because it can act as major resistance or the trigger point for an acceleration to the upside into a major pivot at $3.025.

EIA Report Is the Only Thing That Matters Right Now

The market is expecting a 97 bcf injection today. The five-year average for this time of year is 64 bcf. That gap tells you everything about where domestic supply stands right now. Last week’s report already showed inventories running above last year and above the seasonal average. A number near expectations today takes one more bearish argument off the table for the bulls and hands it to the bears.

The Domestic Picture Is Clearly in Charge

I keep coming back to production as the main reason I can’t get bullish on May Nymex Natural Gas right now. Output is sitting above 110 bcf per day and drilling activity is still elevated versus last year. Layer in warmer than normal temperatures across the eastern U.S. cutting into heating demand and you’ve got a market that is generating consistent storage builds with no relief in sight. That’s not a setup that lends itself to a sustained rally.

Global Supply Risk Is the One Bullish Card

The Middle East situation is the only thing keeping this market from falling apart completely. Restricted flows through the Strait of Hormuz and damage to Qatar’s Ras Laffan export facility are tightening global LNG availability. U.S. export terminals are already seeing stronger flows because of it. If that demand keeps building it offsets some of the domestic oversupply. That’s the bull case and right now it’s the only one worth watching.

The Way I See It

The domestic fundamentals are bearish and the EIA report is likely to confirm it. Global LNG demand is providing a floor but it isn’t strong enough to reverse the trend on its own. The market needs a catalyst to break $2.763 and until that shows up the path of least resistance stays lower.

More Information in our Economic Calendar.