Natural Gas News: Futures Bounce on Storage Report Miss but Forecast Stays Bearish

June Natural Gas Steadies on Storage Miss

June Nymex Natural Gas firmed after the Energy Information Administration storage report Thursday and the reason had nothing to do with the supply picture improving. Traders went into the number bracing for another oversized build on top of the 103 billion cubic feet injection from the prior week. The data came in tighter than expected and that was enough to trigger some short covering. That is the whole story behind today’s bounce.

Storage Miss Sparked the Move

The Energy Information Administration reported an injection of 79 billion cubic feet for the week ending April 24. The consensus was sitting at 83 billion cubic feet. The miss was modest but the market was so oversold heading into the number that even a small bullish surprise was enough to stabilize prices. Total working gas in storage now stands at 2,142 billion cubic feet, 5.7% above last year and 7.7% above the five-year average. The surplus did not shrink. The pace of building just came in slower than feared. That is not a bull market. That is a market catching its breath.

What Traders Were Expecting

Sentiment going into the report was firmly bearish and it had been for weeks. The prior week’s 103 billion cubic feet build had already widened the surplus and storage was sitting more than 7% above the five-year average. Forecasts were pointing to continued injections above seasonal norms. That backdrop drove prices to multi-month lows earlier in the week and left the market set up for a short-covering bounce on any deviation from expectations. That is exactly what happened Thursday. The move higher is a relief trade, not a trend change.

Production Is Still the Problem

Output in the Lower 48 is running near record levels around 109 to 110 billion cubic feet per day. Even a short-term dip to a 12-week low near 108.3 billion cubic feet per day did not change the picture. The drilling activity increase over the past year and continued infrastructure expansion are keeping supply on track to fill storage at a pace the bulls cannot overcome. I keep coming back to production as the main reason I cannot get constructive here. The numbers are not giving me a reason to change that view.

Weather Is Not Going to Save the Bulls

Forecasts are pointing to mostly mild conditions across large parts of the country over the next week. There are pockets of cooler air moving through the Midwest and Northeast but not enough to drive meaningful heating demand. Summer cooling is still weeks away. This is the dead zone for natural gas demand and the calendar is not going to change that. Traders waiting for a weather-driven spike in consumption are not going to find one in the near term.

The Global Side Is Not Enough

Power generation demand is running slightly higher year over year and that is a real number worth watching. Disruptions to LNG supply from major exporters and constraints in key shipping routes have the potential to pull more U.S. export demand into the picture. I am watching both. The problem is neither one has translated into a meaningful tightening of the domestic balance yet. Exports are helping. They are just not helping enough to offset what production is adding every day.

What I’m Watching

Every bounce in June Nymex Natural Gas is a selling opportunity until something changes on production or storage. Today’s move off the lows looks like what it is. A short-covering reaction to a smaller than expected build in a market that was deeply oversold. The surplus is still there. Production is still running near records. Weather is not providing a catalyst. Until one of those three changes, this market stays heavy and rallies stay limited.

Technical Outlook

Technically, the main trend is down according to the daily swing chart and the moving averages.

The main and minor swing chart trends are down. The downtrends were confirmed earlier on Thursday when the market fell to $2.592. A trade through $2.808 changes the minor trend to up. A move through $2.905 will change the main trend to up. Both moves will likely be fueled by short-covering and maybe a little speculative bottom picking.

The short-term range is $2.905 to $2.592. Its pivot at $2.749 is a potential upside target. Taking it out with conviction will shift momentum to the upside.

The market is currently in a position to form a closing price reversal bottom. If confirmed, it won’t change the trend, but it could trigger a short-covering follow-through move. Sometimes it forms just to alleviate some of the downside pressure.

A trade through $2.592 will signal a resumption of the downtrend with the next targets, multi-year bottoms at $2.564 and $2.442.

The market is currently on the weak side of both the 50-day moving average at $3.004 and the 200-day moving average at $3.497. As long as the market remains under these indicators, the market will remain in sell the rally mode.

More Information in our Economic Calendar.