Natural Gas News: Can Heat Break Storage Resistance as Production Keeps Climbing?

Heat Kept Natural Gas From Breaking but Storage Kept It From Rallying

September natural gas finished Friday with a fractional gain after spending the week stuck between hot weather forecasts and an EIA weekly natural gas storage report that told buyers the heat is not doing enough. The 36 Bcf build Thursday came in above expectations and above the five-year average despite strong cooling demand across the South.

The rig count added four to 128, production pushed above 114 Bcf per day, and the Hugh Brinson pipeline is two weeks from full capacity. The main trend is still down on the swing chart and bulls are trying to form a secondary higher bottom inside the retracement zone. They need to clear $2.830 to change the trend. They have not been able to hold above $2.80 all week.

September Natural Gas futures settled at $2.733, up $0.006 or 0.22%.

Daily September Natural Gas Technical Analysis

September natural gas futures inched higher on Friday after posting an inside day Thursday. The chart pattern tends to indicate investor indecision and impending volatility. The main trend is down according to the daily swing chart. A trade through $2.830 will change the main trend to up. A move through $2.616 will reaffirm the downtrend.

The short-term range is $2.616 to $2.830. The market successfully tested its retracement zone at $2.723 to $2.698 for two straight sessions. Bullish counter-trend traders are trying to produce a secondary higher bottom, which usually begins inside this 50% to 61.8% zone. If successful, they will go after the intermediate retracement zone at $2.798 to $2.840. This zone stopped the rally last week at $2.830.

While a breakout over $2.830 changes the main trend to up, overtaking the intermediate Fibonacci level at $2.840 could trigger an acceleration to the upside.

A successful breakout could extend the rally into the 50-day moving average at $2.974, another main top at $2.979 and a longer-term retracement zone at $2.996 to $3.085.

On the downside, a failure to hold $2.698 will signal the presence of sellers. If this generates enough downside momentum, the break could extend into the main bottom at $2.616.

Storage Built Above Expectations Again and the Weather Did Not Matter Enough

The EIA reported a 36 Bcf build for the week ending August 7 against expectations near 31 Bcf and a five-year average of 33 Bcf. Inventories are running 6.7% above the five-year seasonal average and the EIA projected Tuesday that storage reaches 3,985 Bcf by the end of October, the highest in 10 years.

The weather was not the problem. U.S. electricity output rose 7.0% year-over-year to 99,864 GWh in the week ending August 8. The South stays hot through the end of August and Vaisala expects above-normal temperatures across the West from August 22 through August 26. Cooling demand is firm. Strong wind generation cut into gas burn during the highest demand periods and helped push the injection above where the market expected it. That is the third week in a row where the heat showed up and the storage number said it was not enough.

Production Rose Again, the Rig Count Climbed and More Permian Gas Arrives in September

Lower-48 dry gas production reached 114.4 Bcf per day Friday, up 4.0% year-over-year. Demand was 81.6 Bcf per day, up 1.3%. The gap between output and consumption is the reason storage keeps building despite the hottest weeks of summer. LNG feedgas was 18.1 Bcf per day Thursday, down 0.9% from the prior week.

Baker Hughes reported the active natural gas rig count rose four to 128 for the week ending August 14. That is still below the three-year high of 134 in February but the direction is wrong for buyers hoping production would roll over. More rigs mean more gas eventually, and production has not slowed at any point this year.

Energy Transfer’s Hugh Brinson pipeline reaches full 1.5 Bcf-per-day capacity on September 1. More Permian gas heading to Henry Hub during the shoulder season when demand is at its weakest. The EIA cut its third-quarter Henry Hub price forecast to $2.87 per million British thermal units on strong output and lower LNG demand. The agency is not expecting the heat to change the trajectory.

What to Watch

The storage data has beaten expectations three straight weeks with warm weather already in place. The rig count went up, not down. The next EIA weekly natural gas storage report either breaks that streak or the weather trade stays what it has been all month, a bounce that sellers fade at the top of the range.

The swing chart trend is down and buyers are trying to form a higher bottom inside the retracement zone after holding $2.698 for two sessions. A push through $2.830 changes the trend but the intermediate resistance zone just above it stopped the rally last week. The 50-day moving average at $2.974 is a long way overhead and sellers have been in control at every level between here and there.

More Information in our Economic Calendar.