Natural Gas News: Short-Covering Strength after Surprise EIA Data

U.S. Natural Gas Futures React to EIA Report

U.S. natural gas futures are putting in a mixed performance on Friday, reacting to a surprise report from the Energy Information Administration (EIA) the previous session. The news caught bearish traders off-guard, triggering a short-covering rally.

At 13:10 GMT, natural gas is trading $1.730, down $0.011 or -0.63%.

Unexpected Storage Withdrawal

The EIA’s recent report revealed a larger-than-expected withdrawal of 9 billion cubic feet (bcf) from natural gas storage for the week ending March 8, surpassing analyst predictions of a 3 bcf withdrawal.

Comparison to Past Data

This withdrawal is a significant deviation from the same period last year, which saw a 65 bcf withdrawal, and is also notably higher than the five-year average decrease of 87 bcf for this time of year.

Market Impact of Stockpile Levels

Despite current gas stockpiles being about 37% above normal levels for this time of year, the unexpected withdrawal rate has sparked a response in the futures market.

Price Trends and Production Outlook

Natural gas prices dipped to their lowest since June 2020 on February 27, but the EIA forecasts a surge in U.S. gas usage in 2024. Concurrently, production is projected to decrease, marking the first decline since 2020.

Production Decline in Major Firms

The Lower 48 U.S. states have seen a drop in gas output, now averaging 100.3 billion cubic feet per day (bcfd) in March, down from February’s 104.1 bcfd. This decrease is partly due to reduced drilling activities by major firms like EQT and Chesapeake Energy.

Near-Term Demand Projection

LSEG anticipates a slight rise in gas demand to 111.4 bcfd next week, although this is lower than earlier estimates.

Weather Influence on Demand

NatGasWeather forecasts varying weather patterns, leading to very low gas demand initially, followed by moderate demand due to a forthcoming cooler trend. The end of March, however, is expected to warm up, potentially dampening demand further.

Market Outlook

The longer-term outlook remains bearish, influenced by warmer weather forecasts and potential demand reduction. This trend will shift later in the year when hot summer weather meets the anticipated production cuts.

However, the short-term outlook leans toward bullish as traders adjust positions to the surprise EIA report. Nonetheless, the report is not a trend changing event and bearish traders are likely to treat any rally as an opportunity to add to short positions.

Technical Analysis

The main trend is down according to the trend indicator. A trade through $1.643 will signal a resumption of the downtrend, followed by the February 20 main bottom at $1.762.

The market isn’t close to changing the trend to up, but there is room for further short-covering. However, this is likely to set up new shorting opportunities.