Natural Gas News: Futures Test 7-Month Low as Weather, Inventory Weigh

Natural Gas Drops to Seven-Month Low as Bearish Storage Report Piles On

Natural gas prices stayed under pressure Thursday, extending this week’s losses and dropping to their lowest front-month level in about seven and a half months. The storage report was the hammer.

EIA Storage Build Widens the Surplus

The EIA reported a build of 50 Bcf for the week ending April 3. That came in above the 48 Bcf expectation and well above the five-year average of 13 Bcf. The inventory surplus jumped from 50 Bcf the prior week to 87 Bcf. There is more gas in storage than this market was prepared for and prices are paying for it. Futures settled down around 2% at $2.67 per MMBtu.

Warm Weather Killing What’s Left of Demand

Forecasts are calling for warmer-than-normal temperatures across most of the eastern U.S. through April 23. That takes heating demand off the table at the worst possible time. Consumption is already seasonally weak and the warm weather is making it worse. Every time this market tries to hold the $3 level the weather forecast comes out and kills it.

Production Won’t Let Up

U.S. dry gas output is running at 110.9 Bcf per day, up more than 4% from last year. Demand is down more than 9% year-over-year. LNG export flows are steady near 20 Bcf per day but not strong enough to close that gap. The EIA raised its longer-term production outlook on top of that and the rig count has been climbing for a year and a half. Supply isn’t going anywhere.

Global Risks Are There but Not Moving the Needle

The damage to Qatar’s Ras Laffan facility and the ongoing shipping disruptions are real supply risks for global LNG markets. Power demand in the U.S. is also trending slightly higher year-over-year. Neither of those factors is strong enough to override the bearish domestic picture right now. They’re worth watching but they’re not driving price action this week.

Short-Term Outlook

The path of least resistance is lower. Strong production, rising storage and warm weather through late April are all pushing in the same direction. Unless the weather forecast flips cold or a major supply disruption hits, any rally is going to run into sellers quickly. I’m not looking for a bottom until the supply and demand balance starts to shift and right now there’s no sign of that happening.

Technically, the main trend is down according to the daily swing chart, a trend line and the 50-day moving average. On Thursday, the downtrend continued will sellers pushing prices under the January main bottom at $2.689. The next targets are long-term swing bottoms at $2.622 and $2.514.

According to the daily swing chart, a trade through $2.888 will change the main trend to up. Crossing the trend line at $2.956 will indicate the short-covering rally is getting stronger, but don’t expect a major rally until the buying is strong enough to overcome the 50-day MA at $3.035. And even that move is likely to be capped by fresh selling pressure unless there is a major supply disaster.

More Information in our Economic Calendar.