Natural Gas News: Production Cuts Offer Support as EIA Report Anticipation Grows

Early Overview

U.S. natural gas futures are experiencing a modest rise as they consolidate for a second day. The market’s focus is on the impending U.S. Energy Information Administration (EIA) weekly storage report.

EIA Weekly Storage Report

Anticipation is high for today’s EIA report, especially following last week’s bullish outcome. A notable reduction in U.S. production is suggested by the previous week’s larger-than-expected draw. Survey averages predict a draw of -40 billion cubic feet (Bcf), significantly lower than the 5-year average of -93 Bcf. This discrepancy is attributed to warmer temperatures across most of the U.S. and robust wind energy production. Our estimate stands at a draw of -34 Bcf, potentially leading to a surplus increase to +550 Bcf.

NatGasWeather Forecast

From March 7-13, weather systems will affect the Western U.S. with varied conditions. The Midwest and Northeast will enjoy milder temperatures of 50s-70s, while the Northern Plains will face colder 20s-30s. The weekend will see a slight dip in temperatures across the central, southern, and eastern U.S. due to incoming weather systems. Initially, demand will be light, increasing slightly over the weekend.

Production Cuts

Despite the potential bearish influence of the EIA report, anticipated production cuts provide some support to prices. Notably, EQT, a major Appalachian drilling firm, slashed its output by 1 billion cubic feet per day in late February, amounting to about 15% of its total production. This reduction is expected to continue throughout March. Similarly, Chesapeake, another industry giant, has adopted a comparable strategy. Since February 20, natural gas prices have surged approximately 25%.

Market Forecast

We could see a bearish knee-jerk reaction to the EIA report, but considering the anticipated storage draw, warmer weather forecasts, and significant production cuts, the market sentiment leans towards a bullish outlook. The balance between supply cuts and a modest increase in demand could support an upward price trend in the short term.

Technical Analysis

The short-term trend is up, supported by the February lows. These were created when Chesapeake announced its planned production cuts. With the lows for the year likely in place, traders are now waiting for a catalyst to drive prices higher.

The first upside target is the 50-day moving average at $2.079. Look for selling pressure on the initial test of this level. Overcoming it, however, could trigger a short-covering surge.

As the major long-term bottom continues to form, I think it’s dangerous to chase prices higher since there are still a lot of shorts left in the market. Be patient and wait for a 50% to 61.8% retracement of this current rally before considering the buyside for a long-term rally.