Natural Gas News: Storage Still Controls Natural Gas Futures Despite July Heat

87-Bcf Build Capped Every Rally This Week

August natural gas futures settled at $3.205/MMBtu for the week ending July 3, down 8.2 cents or 2.49%. The contract opened at $3.281, hit $3.328 on the high side and dropped to $3.151 before settling near the middle of the range. Holiday-shortened week with thin volume on Friday.

Storage killed the upside. The contract pushed toward $3.33 early in the week on heat forecasts and could not hold it once the EIA injection number printed. Sellers took over from there and profit-taking ahead of Independence Day finished the job.

Weekly August Natural Gas Technical Analysis

August natural gas futures remain in a down trend according to the weekly swing chart. A trade through $3.418 will change the main trend to up. Taking out $2.974 will reaffirm the downtrend although it may be difficult to initiate new shorts below $3.00 especially in July.

Our minor trend indicator is up because of the rising lower bottoms at $3.001 and $3.059. However, recent lower tops have dampened the upside momentum.

The minor range is $2.974 to $3.418. The market has been straddling its pivot at $3.196 for 5 weeks. Trader reaction to this level will set the near-term tone. As of last week’s close, it is signaling neutral. That is likely being fueled by steady LNG support and steady storage resistance.

A sustained move over $3.196 will indicate the presence of countertrend buyers. If they get a bullish catalyst this week then buyers may take a run at the intermediate 50% level at $3.465. This stopped a rally at $3.418 several weeks ago.

Overtaking $3.465 will indicate the buying is getting stronger. This could trigger an acceleration into the 52-week moving average at $3.671 and the long-term pivot at $3.713.

If sellers regain control and $3.196 fails as support, the increased selling pressure could drive the market into $3.059, $3.001 or even the main bottom at $2.974. Like I mentioned before, I don’t expect to see aggressive selling if these levels are tested, but we could see some aggressive bottom-picking.

Heat Did Not Save the Week

NatGasWeather had strong high pressure locked over the eastern two-thirds of the country through July 2-8 with highs in the 80s, 90s and low 100s across the South. The West was cooler and unsettled with showers and temperatures in the 60s through 80s. National demand ran high to very high for the first five days before easing slightly later in the period.

Power-sector demand has been the best argument the bulls have had all summer. Gas-fired generation is running hard on the back of that heat. The problem is the storage report still prints above average with all of that demand baked in. Production is absorbing whatever the cooling season throws at it. The weather is doing its job. It is not enough.

Ras Laffan Keeps the LNG Floor in Place

LNG feedgas deliveries held strong through the week. U.S. export facilities are running near capacity and that steady pull on domestic supply has been one of the few consistent supports this market has had.

The Qatar story is still live. Iran’s attacks damaged roughly 17% of Ras Laffan’s export capacity with repairs expected to take three to five years. That facility handles about 20% of global LNG supply. U.S. exporters have been picking up part of that gap and feedgas flows reflect it. The floor from LNG demand is not going anywhere soon, but it has not been enough to overcome the storage surplus either.

Production Near Records Is the Supply Story

Baker Hughes reported one rig added during the week ending July 3, bringing the count to 126. Still below the 2½-year high of 134 from February. Producers are adding slowly, not chasing. Output sits near record levels regardless of what the rig count does week to week. One rig changes nothing.

Storage Keeps Building Too Fast for the Bulls

The Energy Information Administration reported an 87-Bcf injection for the week ending June 26, well above the five-year average. Total working gas climbed to 2,922 Bcf. That number is comfortably above normal for early summer and it is why every push above $3.30 this week got sold.

Injections have slowed from the spring refill pace but not by enough to change the conversation. Storage is still expanding at a rate that gives nobody a reason to chase price higher. The bulls needed a below-average build to get the market past $3.33 and they got the opposite. The early-week gains came out in two sessions.

What to Watch

Storage is still building above the seasonal pace and production is not backing off. Heat and the Ras Laffan outage are doing what they can on the demand side but neither has dented the surplus. That standoff has held for weeks and the next EIA number is what breaks it. A build closer to the five-year average gives the bulls something real. Another oversized injection and sellers keep fading every push toward $3.30.

The pivot has been the whole market for five weeks running. Get above it with follow-through and traders start looking at resistance. Lose it and the recent lows come back into focus. That much compression around one level does not last.

More Information in our Economic Calendar.