Natural Gas News: Natural Gas Futures Slide, Chart Points to Sub-$3

Natural Gas Slides as Shoulder Season Threatens Demand

Natural gas futures are drifting lower late Tuesday after taking out last week’s low at $3.055. This is just the beginning of the process of shifting from the winter to the spring, known as the shoulder season. That’s the period when it’s not too hot or not too cold in most of the country, which destroys demand, but helps production. This allows the industry to rebuild supply ahead of the summer cooling season.

The Weather Outlook Has Traders Looking Past This Week’s Cold Snap

As the weather improves the next few weeks, we expect to see lower prices unless there is some freak polar occurrence, but there is nothing on the radar for that. The market could get oversold too, which could produce a short-squeeze spike, but at this time of year, it would be short-lived.

Warm Now, Brief Chill Later, Then Warm Again

Demand and the weather go hand-in-hand this time of year. The current weather pattern is trending warmer February 25 to March 1. That is expected to keep a lid on prices. Parts of the country could experience a colder trend for February 21 to February 25, but the current price action suggests traders are already looking beyond the news and focusing on the weather after the 25th.

Eastern U.S. Stays Warm Until a Brief Cold Blip Hits

Looking at the weekly forecast from NatGasWeather for February 17 to February 23, traders should watch for much warmer than average temperatures across the Eastern U.S. until February 21, then some chilly air for a blip in demand until next Wednesday.

Bulls Are Already Eyeing Summer, But Production May Spoil the Party

There are some analysts who are already saying the summer outlook looks constructive. This is probably because storage is below their model’s estimate of what the market needs once cooling season starts. I’m amazed at how fast the industry recovered from winter storm Fern, which leads me to believe that a sharp pickup in production is coming. According to Morgan Stanley, a rise in activity has already helped push Lower 48 dry gas production to “approximately 107.9 bcf/d month-to-date, up 1.5 bcf/d versus the January average.”

Bearish Fundamentals Meet a Bearish Chart

Looking ahead, we have a bearish outlook for demand and production. This ties nicely into the bearish technical chart pattern. The trend is down according to the main swing chart and the 50-day moving average. Retracement zone resistance comes in at $3.284 to $3.502. Even if we clear the swing top at $3.316 and the 50-day moving average at $3.322, the market could still be capped by a 50% level at $3.502.

Wide Open Downside Targets Below $3.00

On the downside, the chart is wide open with potential targets at $2.595 to $2.554 and $2.578 to $2.480.

The Only Question Left: Fast Dump or Slow Drift Lower?

With the fundamentals and chart pattern bearish, I think the only questions are, will the market dump into support, or will it slowly drift to the targets?