Natural Gas News: Natural Gas Futures Rally Today on Heat Forecast

Summer Heat and Export Demand Challenge the Storage Surplus

July natural gas futures traded at $3.125 at 17:46 GMT on May 27, up $0.115 or 3.82% on the session. The contract bounced hard off $2.978 after falling to nearly a one-week low Tuesday on mild weather forecasts. Updated weather models flipped toward a hotter start to June and the buying came in fast. Storage is above average and production is near record levels and none of it mattered Wednesday. The market is trading what comes next, not what is sitting in the ground right now.

LNG Exports Keep Taking Barrels Off the Table

Gas flows to liquefied natural gas export terminals climbed 8.8% week over week and hit 18.4 billion cubic feet per day. That number is doing more work right now than anything else in the natural gas market because it is pulling supply out of the domestic system at a pace that keeps tightening the forward picture even while current storage looks comfortable.

Cheniere’s Corpus Christi Stage 3 expansion is adding capacity on top of what was already running near full output. Every additional billion cubic feet per day heading overseas is a billion cubic feet per day that does not end up in domestic storage. That is the math the bears keep running into on the sell side.

Production Near Record but the Market Does Not Care

U.S. lower-48 dry gas production recently hit 110.6 billion cubic feet per day. That is up 3.1% from a year ago and sitting right near all-time highs. Under normal conditions that number would be enough to keep a lid on prices all by itself. More gas coming out of the ground means more supply hitting the system and more supply means lower prices. That has been the playbook for years. But the market is not trading normal conditions right now.

Export demand is absorbing a chunk of the increase before it ever reaches storage. Power burn is about to ramp with summer heat. Traders looked at the production number Wednesday and decided the demand side of the equation was growing fast enough to offset it. That does not mean production stops mattering. It means the market needs to see production growth slow or demand growth accelerate before it picks a direction with any conviction.

Storage Is Above Average but the Injections Are Getting Watched

Natural gas stockpiles are sitting roughly 6.6% above the five-year seasonal average. The Energy Information Administration reported an injection of 101 billion cubic feet last week which came in slightly above expectations. That is normally the kind of number that pushes prices lower because it tells traders that supply is building faster than the market needs it. But the reaction Wednesday was the opposite.

Traders looked at that storage number and still bought the dip because the forward demand picture is starting to compete with the current surplus. If injections start coming in below expectations over the next few weeks that changes the conversation fast. If they stay above average the bears have the better argument. Right now the market is betting that summer demand eats into the surplus before it becomes a problem.

Weather Models Flip Toward Early Summer Heat

Updated forecasts Wednesday shifted toward above-normal temperatures across the Southeast, Mid-Atlantic, and Midwest heading into early June. That is the trigger that turned the session around. Mild weather forecasts drove the selloff Tuesday and hotter forecasts drove the rally Wednesday.

For natural gas the connection is direct. Hotter temperatures mean more air conditioning demand. More air conditioning demand means more gas getting burned for power generation. The June contract is approaching expiration and some of the buying Wednesday looked like short covering and defensive repositioning around the $3.00 level. But the weather shift gave those buyers a fundamental reason to get aggressive.

Daily July Natural Gas Futures Technical Analysis

July natural gas futures are trading higher shortly after the mid-session on Wednesday after a strong rebound from $2.978, its lowest level since May 7. The main trend is up according to the daily swing chart with today’s move suggesting buy the dip is the strategy. A trade through $3.307 will signal a resumption of the uptrend. A trade through $2.951 will change the main trend to down.

The main range is the April 30 main bottom at $2.893 to the May 20 main top at $3.307. Its 50% level at $3.100 is the key pivot to watch. The market has been trading on the weak side of this pivot all week. Trader reaction to this level will set the tone into the close.

Today’s strong reversal from $2.978 indicates buyers were defending $2.951. The next move will be determined by trader reaction to the pivot at $3.100.

A sustained move over $3.100 will signal the presence of buyers with the first target the 50% level at $3.152. This level is important. Not only is it resistance and a trend indicator, but also a potential trigger point for an acceleration to the upside. The first objective is the swing top at $3.307, followed by the first 50% level at $3.387.

The inability to overcome $3.100 will signal that the buying isn’t strong enough yet. This could lead to a retest of $2.978, followed by $2.951. If this price fails then the trend will turn to down with $2.893 a possibility.

The size of today’s reversal indicates that buyers are back. But a follow-through rally on Thursday after the government storage report will give us a stronger bullish signal. Otherwise, we’re just looking at a rally in a weak market. While $3.100 sets the tone today, I think the near-term direction will be determined by trader reaction to the 50-day MA.

What I’m Watching

The Energy Information Administration storage report Thursday is the next catalyst. If the injection comes in below expectations it confirms that the demand side is starting to absorb the surplus and July natural gas futures should push back above the $3.100 pivot. If the number comes in heavy the market goes right back to testing $2.978 and $2.951.

The weather models are the bigger driver over the next two weeks though. If the hotter forecasts for early June hold and power burn ramps the way the market is starting to price in, the $3.307 swing top comes back into play. If the models flip back toward mild conditions the rally Wednesday was just short covering and the weak side of $3.100 stays in control. The pivot is $3.100. Everything above it says buyers are in charge. Everything below it says this is still a rally in a weak market.

More Information in our Economic Calendar.