Natural Gas News: Storage Build Sparks Rally Above the 50-Day Moving Average

Storage Build Came in at Half the Normal Pace and the Market Ran With It

Natural gas buyers took control Thursday after the EIA weekly natural gas storage report printed a 15 Bcf build against a five-year average of 33 Bcf. Less than half the normal seasonal injection. That number landed after weeks of summer reports that came in heavy despite hot weather, and this was the first one that told buyers the heat is actually reaching the data.

October futures broke above the 50-day moving average for the first time since July 8 on the back of it. That is the level that has defined the trend for two months. Crossing it on a below-average build with European storage running 18 points below normal and Hormuz still restricting Middle East LNG is the strongest setup buyers have had since the summer trade started.

October natural gas futures were trading at $2.966 at 18:07 GMT, up $0.092 or 3.20%.

The contract reached its highest level since late July. The three-day rally that started earlier in the week found its catalyst in Thursday’s storage number. The market had been bouncing on weather forecasts and selling on heavy builds for weeks. Thursday broke the pattern.

The Injection Number Broke the Pattern That Had Been Killing Every Rally

The EIA reported a 15 Bcf increase in working gas for the week ending August 21. The market expected closer to 17-20 Bcf. The five-year average for the week is 33 Bcf. Every previous summer report had come in at or above expectations regardless of the temperature outside. This one did not.

Total working gas reached 3,184 Bcf. That is 30 Bcf below the same time last year. It is still 167 Bcf above the five-year average, or 5.5% higher. The surplus has not disappeared. It is shrinking during the weeks when it normally grows the fastest, and that is the part of the report the market is trading.

The southern two-thirds of the country remains hot. Texas and the Southwest are running summer heat and air-conditioning demand is pulling gas to power plants. LNG feedgas is recovering as Gulf Coast maintenance eases. More gas flowing to export terminals means less gas available for domestic storage. The heat is tightening the demand side. Rising feedgas is tightening the export side. Both hit the storage number in the same week for the first time this summer, and the 15 Bcf build is what happens when they work together.

Lower-48 dry gas production is still elevated. Output has not slowed. That is the bearish counterweight buyers have been fighting all summer. Thursday’s report showed that even with production running high, the combination of heat and LNG demand produced a build well below normal. The supply side is not retreating. The demand side finally got loud enough to matter anyway.

Europe Is Short on Storage and Hormuz Is Making It Worse

European gas storage is 63% full, 18 points below the five-year average heading into winter. Hormuz is still restricting Middle East LNG from reaching the continent. U.S. cargoes are filling part of the gap and every molecule that ships to Europe is one that does not go into domestic storage.

Natural gas and crude both sold off Wednesday on reports that Iran and Oman were working toward a transit deal. Thursday’s 15 Bcf build put buyers back in front. The market has seen Hormuz reopening headlines before. It has not seen a storage build this far below the five-year average in weeks.

Daily October Natural Gas Technical Analysis

October natural gas futures are sharply higher late Thursday as buyers reaffirmed the three-day rally with a breakout above the 50-day moving average at $2.937. This marked the first day since July 8 that the futures market was trading on the strong side of the 50-day MA.

The main range is $3.420 to $2.668, the 50% to 61.8% zone formed by this range is $3.044 to $3.133. A clean close above the 50-day MA will likely set up the market for a surge into the retracement zone early next week.

What to Watch

The 15 Bcf build against a 33 Bcf five-year average was the first storage number all summer that confirmed what the heat and LNG demand have been doing. The next EIA weekly natural gas storage report carries more weight than usual. Heat is still in the forecast. LNG feedgas is recovering. European storage at 63% with winter approaching keeps demand for U.S. cargoes firm. Hormuz reopening headlines moved gas lower Wednesday. Thursday’s data moved it right back.

October futures broke above the 50-day moving average at $2.937 for the first time since July 8. Two months of rallies failed at or below that level. Thursday cleared it on the strongest storage number buyers have had all summer. The retracement zone at $3.044 to $3.133 is the next target if the close holds above the 50-day.

More Information in our Economic Calendar.