Natural Gas News: Futures Drop as Warm Weather Report Sparks Selloff

April Natural Gas Turns Lower as Bearish Weather Forecast Flips the Market

April Natural Gas prices are lower on Tuesday after the week kicked off with a steep loss. Prices advanced early Monday on cold weather concerns in the Northeast, but quickly reversed when midday forecasts turned bearish. According to the Commodity Weather Group, above-normal temperatures are predicted for the first week of March.

Prices surged initially Sunday night as cold temperatures and snow hit the Northeast. Complicating the situation were reports from over the weekend that below-normal temperatures would linger in the area through March 4. However, the bid market quickly turned to sellers when a new forecast surfaced, calling for above-average temperatures across the high demand eastern half of the United States through March 9.

Sell the Rally Mode Is Now in Full Effect

The speed at which natural gas flipped from bullish to bearish only highlights the fact that we are now in a “sell the rally” market. In my opinion, other than the huge price spike in late January, sellers have been in control since December. However, they paid a heavy price during Winter Storm Fern before regrouping. Fear of reduced heating demand and higher production could weigh on the market for more than a week.

Production Surge and Storage Deficit Set Up a Critical Spring Season

Monday’s data showed dry gas production at 113.7 Bcf/day, according to BNEF, putting it up about 9.0% for the year. Long-term production estimates from the Energy Information Administration (EIA) are also bearish, calling for 109.97 Bcf/day, up from 108.82 Bcf/day.

Traders are watching production closely because there is a storage deficit. In last week’s EIA storage report, the government reported that natural gas inventories were 5.6% below their five-year seasonal average. Traders are hoping that production is sufficient during the upcoming spring shoulder season to shore up the tight supply situation before the summer cooling season. With drilling rigs at a 2.5-year high of 133 rigs, according to Baker Hughes, expectations are high for ample supply.

LNG Demand Is the Wildcard That Could Change Everything

In my opinion, the wildcard this year is going to be LNG production. The demand for the product is high, pushing estimated LNG net flows to U.S. LNG export terminals on Monday to 19.9 Bcf/day, up 1.61% week-over-week, according to BNEF.

Sell the Rally Until the 50-Day MA Is Overcome

Technically, the April Natural Gas futures contract appears poised to begin March in a downtrend. The key resistance to overcome is the 50-day moving average at $3.168, just above yesterday’s high at $3.150.

Potential downside targets include a gap at $2.867 to $2.766 and a pair of main bottoms at $2.627 and $2.604. The market will remain in sell the rally mode unless the 50-day MA is overcome.

More Information in our Economic Calendar.