Natural Gas News: Storage and Freeport Keep the Bears in Control

Freeport and Storage Erase Friday’s Gas Rally

Friday’s Strait of Hormuz rally did not survive the weekend. August natural gas is giving it all back Monday as the domestic supply picture takes control of the trade. Freeport LNG remains in maintenance through August, storage is well above the five-year average and the weather is not cooperating where it would actually move the national demand number. Texas heat is not the same as national heat and the market is trading that distinction Monday.

August Nymex natural gas futures are trading at $2.842, down $0.069 or -2.37%.

European gas prices remain supported by the Strait of Hormuz threat but Friday’s bid on that story faded by Monday morning. The domestic balance is the trade and the balance is bearish.

Domestic Supply Keeps Natural Gas Buyers on the Sidelines

Freeport LNG remains in maintenance through August. One of the biggest feedgas pulls in the country is sitting idle while domestic supply is already heavy. Friday’s rally on the overseas LNG story looked good for a day. It is not the trade Monday. Europe can bid up its own gas prices on reduced Middle East flows. Henry Hub still has to deal with Freeport offline, production running strong and a storage surplus that gives sellers all the room they need.

The overseas risk matters if the conflict escalates or Freeport feedgas starts recovering. The market is treating both of those as tomorrow’s problem. Monday is strictly a domestic trade.

Storage Surplus Backs Up the Sellers

Last week’s EIA report showed a 41 Bcf injection for the week ending July 10 and working gas in storage rose to 3,024 Bcf. It is now sitting 181 Bcf above the five-year average and that surplus is probably why Friday’s rally did not stick.

Thursday’s report is the next scheduled test. Another healthy injection keeps the bears comfortable. A smaller build after this week’s Texas heat would get shorts’ attention, but one number is not going to reverse the storage picture by itself.

Texas Heat Is Not Enough Without the East

Texas is expecting triple-digit temperatures later this week and that supports gas-fired power generation. The problem for bulls is the heat is regional. Forecasts have turned cooler in the Southwest and Mid-Atlantic through July 26. Canadian wildfire smoke has cleared in parts of the Northeast, improving solar output and cutting into gas burn.

The weather models are still split. One forecast points to stronger cooling demand in the Midwest and East while the other sees less across the higher-population northern regions. That disagreement is keeping weather traders from chasing the Texas story. The national picture has to line up before heat becomes a real catalyst.

Daily August Natural Gas Technical Analysis

August natural gas futures are edging lower shortly after the mid-session on Monday as speculators continue to try to form a support base in the hopes of a spike in weather demand. The current support zone we are looking at is $2.857 to $2.801. Last week’s low at $2.823 is in this zone. With about a week to go before the rollover, bullish traders appear to be a little cautious about what appears to be a bullish bet on the weather.

Establishing a support base is one part of the puzzle, creating enough upside momentum to take out a swing top at $2.968 is the other. Given the recent plunge from $3.355, this market appears to be in the hands of strong sellers so any rally is likely to be short-lived or perhaps even met with another wave of bearish trading.

Potential upside targets include a pair of 50% levels at $3.089 and $3.121, followed by the 50-day moving average at $3.158.

So while the trend is down and the fundamentals are weak, I can accept the possibility of a weather driven short-covering rally, but the daily chart’s wall of resistance suggests there could be a major stopper waiting up there.

What to Watch

Natural gas needs either broad national heat or a tighter storage number to stop the selling and so far neither one is showing up clearly enough to shift the trade. Texas by itself has not been enough and the Midwest and East have to join the demand story before weather becomes a real catalyst. Freeport staying offline through August keeps the domestic supply picture heavy and Thursday’s EIA number is the next data point that could change the math.

The Strait of Hormuz risk that lifted prices Friday is still in the background and any escalation that disrupts Middle East LNG flows further could force European buyers back toward U.S. cargoes. That would tighten the domestic balance in a way storage and weather alone have not been able to. Until that happens, Friday’s rally looks like a reaction to an overseas headline that the domestic market was not ready to follow.

The trend is down and sellers are in control. The market is trying to build a base inside the current support zone but has not generated the momentum to challenge resistance above. Any rally from here is more likely to attract fresh selling than convert bears. The base either holds or the market has room to drop into deeper support.

More Information in our Economic Calendar.