Natural Gas News: EIA Inventory Report Weighs on Futures Despite Cold Forecast

Natural Gas Edges Lower as Traders Await Next Catalyst Amid Supply Concerns

Natural gas futures inched lower on Friday with traders showing respect for the previous day’s low at $3.006 as well as the psychological $3.000 level. The price action suggests traders are waiting for the next catalyst to drive the next major move. Short-term traders are weighing the back-to-back cold shots expected to hit the country between now and the end of the month against the huge supply.

On Friday, February Natural Gas settled at $3.103, down $0.025 or -0.80%.

Cold Weather Forecasts Fail to Lift Prices

Prices were rangebound on Friday one day after the nearby futures contract hit a three-month low. Traders shrugged off new reports from the Commodity Weather Group calling for below-normal temperatures across much of the northern U.S. and East for the January 21-30 period.

NatGasWeather is forecasting moderate demand through Saturday, then a surge from Sunday through Wednesday, January 21.

High Inventory Levels Weigh on Market Sentiment

Thursday’s weekly government storage report was also a bearish influence for a second session. According to the Energy Information Administration (EIA), as of January 9, natural gas inventories are up 2.2% year-over-year, and are 3.4% above their 5-year seasonal average, signaling ample supplies.

Technical Outlook Shows Downtrend Intact

Technically, the main trend is down according to the daily swing chart. A trade through $3.006 will reaffirm the downtrend. Until a support base forms or a “W” pattern is created, any rallies above swing tops at $3.499 and $3.634 will only signal changes in momentum, not changes in trend.

In addition to the short-term swing tops, traders also have to deal with short-term 50% levels at $3.320 and $3.591, creating potential resistance clusters.

Longer-term, the major resistance cluster is the 50-day moving average at $3.987 and the 50% level at $4.014. This is followed by the 200-day moving average at $4.254.

On the downside, minor support is Thursday’s low at $3.006 and the psychological $3.000 price level. Multi-month bottoms come in at $2.991 and $2.770.

Market Remains in “Sell the Rally” Mode

The current expected cold snap may be slowing down the bearish momentum, but it’s not significant enough to change sentiment. However, conditions may change over the weekend, which opens up the possibility of a gap higher opening on Sunday night.

Currently, the market is still in “sell the rally” mode. It’s going to remain in that state until a support base forms, which will show that the market is absorbing the high supply. Furthermore, cold snaps are normal during the winter season so they usually have a mild impact on prices. If the language changes to “lingering cold” or “polar vortex”, or words that imply increasing intensity, then we could have the makings of a prolonged rally.

There is still time for a meaningful winter blast and rally, but bullish traders are running out of time for a prolonged rally in terms of price and time.

More Information in our Economic Calendar.