Natural Gas News: Testing Multi-Year Low Ahead of EIA Report

US Natural Gas Futures: Current Trends and Projections

US Natural Gas futures are slightly higher on Thursday as traders await the latest US Energy Information Administration (EIA) storage report. Despite the potential for short-term fluctuations, the market is expected to continue its current trend, influenced by weather conditions and storage levels. Although today’s report could fuel a knee-jerk counter-trend rally.

At 13:08 GMT, Natural Gas Futures are trading $1.740, up $0.022 or +1.28%.

Weather Impact and Storage Levels

Recent weather reports from NatGasWeather indicate most of the US experiencing warmer temperatures, with some cooler exceptions in the Southwest and Northern Plains. This mild weather reduces the need for heating, contributing to a surplus in natural gas storage, currently estimated at +674 billion cubic feet (Bcf). The anticipated storage draw is around -31 Bcf, which is slightly higher than the five-year average of -27 Bcf.

Recent Market Trends

May delivery futures have recently decreased by 1.7%, a reaction to the decreased heating demand and substantial gas storage. Notably, gas prices have dropped to their lowest since June 2020, reaching $1.481 per mmBtu. This price drop is attributed to a mild winter and an all-time high in gas production, resulting in unusually large gas reserves.

Production Changes

Major US gas producers, including EQT and Chesapeake Energy, are reducing their drilling activities in response to the market. This decline in production is mirrored by a significant increase in the oil-to-gas price ratio, suggesting a potential shift in focus from gas to oil production.

Supply and Demand Analysis

Gas output in the Lower 48 US states has fallen, with current averages around 100.2 billion cubic feet per day (bcfd), down from February’s 104.1 bcfd. Forecasts suggest a further decrease in demand due to the approaching warmer weather, with expectations of demand dropping from 112.3 bcfd to 105.0 bcfd next week.

Short-Term Market Forecast

With high storage levels and reduced demand due to warmer weather, the short-term outlook for US natural gas futures remains bearish. Prices are likely to continue their downward trend. These conditions suggest that traders should closely monitor weather and storage data, as these factors will be crucial in shaping market movements in the near term. This period of high supply and lower demand is likely to exert continued downward pressure on natural gas prices.

Natural gas futures are higher on Thursday after testing a multi-year low earlier in the session. The price action is likely being fueled by short-covering ahead of today’s EIA storage report.

The price action can’t be ignored, however, because it also represents the first step in forming a potentially bullish closing price reversal bottom. I don’t think price is going to turn this market around, but rather a shift in sentiment in the form of a strong enough reversal that forces weak short sellers to bail out.