Natural Gas News: Short-Covering Rally Risk Emerges in Weak Market

Natural Gas Drops 5.43% on the Week as Mild Weather and Rising Storage Pressure Prices

May Nymex Natural Gas settled at $2.648 for the week ending April 10, down $0.152 or 5.43%. Early Monday trading shows a small bounce to $2.682 but that’s not a trend change. That’s short covering in an oversold market.

Mild Weather and Storage Builds Are Running This Market

The pressure came from the same two places it’s been coming from all month. Mild temperatures knocked out heating demand and cooling demand hasn’t picked up to replace it. The EIA reported a 50 Bcf storage build for early April, pushing total inventories to 1,911 Bcf. Another build is expected this week and that keeps the supply picture comfortable. Production stayed strong on top of that. The domestic fundamentals are bearish and there’s no near term catalyst to change them.

LNG Exports Are Holding but Not Moving the Needle

U.S. LNG export demand is steady but it isn’t tight enough to offset the oversupply at home. The problem is that export demand is tied to global prices. If overseas markets soften, U.S. export volumes don’t increase and the domestic surplus just keeps building. For now the domestic picture is driving price direction and the domestic picture is bearish.

Europe and Asia Still Watching the Strait

Global markets are trading a different story. Gas prices in Europe and Asia dipped briefly on ceasefire news then recovered when it became clear the Strait of Hormuz situation wasn’t resolved. Qatar is a major LNG supplier and safe shipping routes are a prerequisite for full exports. Asian buyers are still scrambling for alternative supply and that’s keeping global prices supported even as U.S. prices fall. The two markets are moving in opposite directions right now and the gap reflects how different the supply situations are on each side of the Atlantic.

What to Watch the Week of April 17

The EIA storage report is the number to watch along with jobless claims and industrial production. Weather stays in focus too. If temperatures stay mild through mid-April the storage builds keep coming and the bearish pressure stays in place. The Middle East is still the wildcard. Any escalation in the conflict tightens global LNG supply fast and that pulls U.S. export demand higher with it. One bad headline and this market moves quickly.

Weekly Forecast

The short-term outlook is neutral to slightly bearish. Strong supply and mild weather are keeping a lid on prices. The technical bounce early Monday tells me the market is oversold in the short term but oversold doesn’t mean the trend is changing. Rallies are still for selling until the supply and demand balance shifts. Watch for the Middle East to be the catalyst that changes this market when it does change. Just not yet.

Technically, the main trend is down. This week opens with May Natural Gas Futures in the midst of a five-week losing streak. We’re looking at a possible extension of the selling pressure into multi-year levels at $2.526 and $2.405.

But I’m a realist and trader too so I see the possibility of a reversal from current price levels although the major reversals tend to come after a 7 to 10 week decline. Also note that I said possible reversal, not change in trend. There is a major difference. Short-covering is usually featured during a reversal, while new buying tends to drive changes in trend. The market may become especially sensitive to news at current levels so brace yourself for heightened volatility.

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