Natural Gas News: Market Seeking Equilibrium After Steep Sell-Off

Natural Gas Futures Recover on Short-Covering

U.S. natural gas futures are steady-to-lower on Friday as short-sellers attempt to square positions ahead of the weekend. This follows a week of substantial selling pressure due to worries about increased production, favorable weather, and a larger-than-expected storage report.

At 14:28 GMT, Natural Gas futures are trading $2.558, down $0.014 or -0.54%.

Massive Selling Pressure

Natural gas futures experienced significant downward pressure this week, driven by concerns over rising production volumes, mild weather forecasts, and a higher-than-anticipated storage report. Early trading on Friday saw further declines, but the market quickly rebounded due to short-covering, profit-taking, and position-squaring. Analysts suggest that the market is currently searching for support after an early May short squeeze led to an unsustainable price spike.

Market Equilibrium and Support

Analysts note that the market is attempting to find an equilibrium following the rapid price increases in May. The recent sell-off indicates that traders are looking for new long positions to counteract the persistent selling pressure. Eli Rubin of EBW Analytics highlighted that while immediate-term softness is possible due to higher gas production, rebounding heat could provide physical support as early as next week.

Weather Impact on Demand

The NatGasWeather forecast for May 31 to June 6 indicates that the southern U.S. and California will experience very warm to hot conditions, with temperatures in the mid-80s to 90s, and even hotter in the Southwest deserts. The northern two-thirds of the U.S. will enjoy milder weather, with highs in the 60s to lower 80s. The Midwest and Northeast are expected to warm into the 80s next week, contributing to stronger national demand.

Storage Report Analysis

Natural gas futures fell on Thursday following the latest EIA inventory report, which showed an 84 Bcf build in underground storage, bringing the total to 2,795 Bcf as of May 24. This build was higher than the 77 Bcf estimate but smaller than the five-year average injection of 104 Bcf. The report slightly reduced the surplus from 606 Bcf to 586 Bcf. Weather forecasts suggest light demand over the weekend, with a potential increase next week as temperatures rise.

Market Forecast

The current market situation suggests a cautious outlook for natural gas futures. While higher production poses a bearish risk, the market needs to find solid support before any bullish trend can emerge. Traders should watch for signs of stabilization and increased demand due to rising temperatures in the coming weeks.

Technical Analysis

Natural gas futures are trying to establish a support base ahead of the weekend. However, it may need to complete the current break with a test of the 50-day moving average at $2.472 in order to attract more aggressive buyers.

Unless buyers can overcome the pivot at $2.652, we’re looking for the selling to extend into the 50-day MA over the short-run.