Natural Gas News: Mixed Performance Post Production Cut Announcement

James Hyerczyk
Published: Mar 5, 2024, 12:49 UTC

Key Points:

  • EQT plans future output cuts, influencing natural gas prices.
  • Prices surged after EQT's production cut announcement.
  • Market expects pressure after EIA report amid mild weather.
Natural Gas News

In this article:

Market Overview

U.S. natural gas futures are putting in a mixed performance on Tuesday after a recent surge to their highest point since early February. The spike in prices came as a reaction to major producers cutting output due to low prices caused by a warmer-than-expected winter and unprecedented U.S. production levels.

At 12:26 GMT, natural gas futures are trading $1.895, down $0.021 or -1.10%.

Production Cuts

EQT, a significant Appalachian drilling company, reduced its output by 1 billion cubic feet per day in late February, a cut that represents about 15% of its total production. This reduction is set to continue throughout March, with a re-evaluation planned thereafter. This move followed a similar strategy by Chesapeake, another key player in the industry. Since February 20, when natural gas prices were at their lowest in decades when adjusted for inflation, prices have risen by approximately 25%.

NatGasWeather Outlook

The weather over the weekend and the last 24 hours trended warmer, but despite this, natural gas prices opened higher this week due to EQT’s announcement of reduced U.S. production. The market is now weighing the impact of reduced production against bearish weather patterns. Current forecasts indicate very light national demand for the next 13 days, with a return to seasonal norms around March 18-19. The weather will be mostly mild in the central, southern, and eastern U.S., leading to low demand, with a slight increase expected next weekend.

Implications of Production Cuts and Weather

The market anticipates that production curbs will help support prices, as mild weather forecasts suggest limited demand, which might constrain inventory surpluses. However, these gains might be capped, as the impact of production cuts on nearby storage levels is expected to be minimal. The upcoming EIA storage report on Thursday is likely to exert pressure on natural gas gains, with predictions of a minor drawdown or possibly even a build in storage.

Short-Term Forecast

In the short term, natural gas markets might face downward pressure as we approach Thursday’s storage report. The balancing act between reduced production and mild weather-induced low demand, coupled with storage trends, suggests a bearish outlook post the EIA storage report release.

Technical Analysis

Daily Natural Gas

Despite the short-term strength, the rally could begin stalling as the market approaches the 50-day moving average resistance at $2.080. If sellers return, we could see a correction to $1.798.

The fundamentals are still bearish so once the technical short-covering ends, short-sellers will return.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?