Natural Gas News: Massive 379 bcf Draw Could Spark Volatility in Market Today

EIA Storage Report Takes Center Stage

Natural gas futures are flat ahead of the release of today’s U.S. Energy Information Administration’s (EIA) weekly storage report at 15:30 GMT. After a gap lower opening on Monday on warm weather forecasts to their lowest level since January 20, prices have stabilized for two sessions on cold temperature warnings and expectations of tighter inventories. Traders will be watching today to see how the EIA numbers impact the current storage surplus.

At 10:03 GMT, March Natural Gas Futures are trading $3.457, down $0.008 or -0.23%.

Monday’s Warm Weather Gap Gives Way to Stability

Other than the Monday price dump, it’s been a relatively quiet week compared to the previous week’s volatility.

Arctic Blast Drove Prices to 3-Year High

On Wednesday, January 28 prices surged to a 3-year high on strong demand driven by a massive Arctic blast of cold weather. Not only did the frigid temperatures drove up demand, but it also caused freeze-ups in gas wells, leading to disruptions in Texas and other places.

Freeze-Ups Cut 15% of U.S. Production

According to reports, about 50 billion cubic feet (bcf) of natural gas came offline last week, or about 15% of total U.S. natural gas production.

Last Week’s Draw Beat Estimates but Surplus Remains

These events should have a dramatic impact on this week’s weekly storage report. On January 29, the weekly EIA storage report was potentially supportive for prices on paper, as natural gas inventories for the week-ended January 23 fell by 242 bcf. This was a larger draw than the 238 bcf estimate and the 5-year weekly draw of 208 bcf.

The EIA report also showed that natural gas inventories were up 9.8% y/y and were 5.3% above their 5-year seasonal average. This evidence signals ample natural gas supplies.

Today’s Report Could Show Massive 379 bcf Draw

Today’s report is expected to show a massive 379 bcf draw. Last year’s weekly change was 195 bcf. The 5-year Average Weekly Change is 190 bcf.

Technical Picture Shows Downtrend Intact

Technically, according to the daily swing chart, the main trend is down. A trade through $3.155 will signal a resumption of the downtrend. Taking out $4.425 will change the main trend to up.

The moving average trend indicator is neutral. Holding above the 200-day moving average at $3.408 is supportive, but trading on the weak side of the 50-day moving average at $3.773 is bearish.

Key Support and Resistance Levels

Additional support is being delivered by a retracement zone at $3.502 to $3.284 and potential resistance is the retracement zone at $3.790 to $3.940. The 50-day moving average at $3.773 and the 50% level at $3.790 also forms a resistance cluster.

What to Watch After the EIA Release

Looking ahead to today’s trade, the EIA storage report will be the main catalyst. The cold weather forecast for the Northeast through February 8 is likely to be a minor catalyst.

Look for a bullish tone to develop if buyers can hold above the 200-day moving average at $3.408 while taking out the 50% level at $3.502. The key upside target is $3.773 – $3.790, followed by $3.940. The tone will flip to bearish on a sustained move under the 200-day, which leads to an eventual break down under the $3.155 swing bottom.

In my opinion, gains are likely to be limited by $3.773 to $3.940 as long as the EIA doesn’t report a draw over 450 bcf and the cold weather forecast doesn’t extend beyond February 8.

The question is, will the massive draw flip the surplus to the 5-year average into a deficit? Look for volatility and a possible two-sided trade after the EIA report is released.

More Information in our Economic Calendar.