Natural Gas News: Cooler Forecasts Break Natural Gas Below the 50-Day Average

$3.00 Failed Again and Power Burn Is Dropping

October natural gas futures topped $3.00 Tuesday and reversed hard. The weather models flipped cooler over the holiday weekend. Power burn dropped sharply. LNG feedgas hit a four-month high and it did not matter. Sellers pushed the contract through the 50-day moving average and the selling has not stopped. The bid that had been building under $3.00 through last week is gone.

At 12:12 GMT Wednesday, October Nymex natural gas futures are trading $2.863, down $0.053 or 1.82%.

The Weather Flipped While the Market Was Closed

The weather models shifted cooler across the Midwest, the Northeast and the South for the next week to two weeks. That replaced the hotter outlook traders had been leaning on through the holiday. The weather services that had been seeing some cooling over the weekend shifted further in that direction by Tuesday morning.

Late-month forecasts still show some cooling demand across the South Central region. A few northern areas may get residual heat before fall settles in. Tuesday’s selling said nobody was trading those. The broader read was cooler and the market priced it from the opening bell. The 50-day moving average gave way in the process.

LNG Hit a Four-Month High and the Market Kept Selling

LNG feedgas reached its strongest level in four months. Gulf Coast plants are pulling hard. European storage is still running well below the five-year seasonal average heading into fall. The Strait of Hormuz remains disrupted. U.S. cargoes are not losing buyers. None of it mattered Tuesday. The contract dropped 3% with feedgas at a four-month high. The cooler forecasts and 114 Bcf per day of production were louder.

Production at 114 Bcf and Storage Is Still Above Normal

Lower-48 dry gas production hit 114.3 Bcf per day last week, up more than 5% from a year ago. Baker Hughes reported active gas rigs at 130, just below the three-year high of 134 reached in February. The EIA raised its 2027 production forecast to 116.0 Bcf per day from 115.3 in July.

Storage stood at 5.2% above the five-year seasonal average as of August 28. The EIA projects inventories will reach 3,985 Bcf by the end of October, the highest in 10 years. Last week’s 30 Bcf injection was below the five-year average of 37 Bcf but the refill season is still adding gas.

The cooler forecasts took the one demand argument that was holding the production and storage numbers in check. Without late-season heat, the 114 Bcf per day production base and the October storage forecast are the numbers running the trade.

Daily October Natural Gas Futures Technical Analysis

October natural gas futures are edging lower early Wednesday after sellers rejected yesterday’s rally to $3.014. This was slightly below the main top at $3.026 and the long-term retracement zone at $3.044 to $3.133.

The subsequent break from the high pierced the 50-day moving average at $2.886 and drove the market into its intraday low at $2.863. The move stopped short of key short-term retracement-zone support at $2.847 to $2.805 and the main bottom at $2.855.

The main trend is up according to the daily two-bar swing chart. The current decline is counter-trend selling. The main trend and the bullish bias remain intact as long as the main bottom at $2.832 holds as support.

A close below $2.886 weakens the bullish case. However, it does not change the main trend.

A trade through $3.026 would reaffirm the uptrend and put the $3.044 to $3.133 retracement zone back in play. A trade through $2.832 would change the main trend to down and shift momentum to the downside.

Combining the key levels on the swing chart produces a major support cluster at $2.847 to $2.832. Counter-trend buying could surface in this area, however, the response has to be strong enough to regain the 50-day moving average. If the main bottom fails, rallies are likely to meet selling pressure.

What to Watch

The next round of weather model runs decides whether Wednesday’s selloff extends or stalls. The cooler outlook covering the Midwest, Northeast and South through mid-September is the reason the market lost $3.00. LNG feedgas at a four-month high is the one number bulls still have. Thursday’s storage report is the next data point that can shift the argument.

The 50-day moving average at $2.886 is sloping lower and the market pierced it Tuesday. That is a warning sign even with the main trend still up. The support cluster at $2.847 to $2.832 held the selling Tuesday at $2.863 and that is where the near-term direction gets decided. The main trend stays up while $2.832 holds but the 50-day is sloping lower and the market already pierced it Tuesday. If sellers take out $2.832, the trend flips down and the base-building from last week is done.

More Information in our Economic Calendar.