Natural Gas News: Weather and Inventory Report Put Gas Market on Edge

June Natural Gas Reverses Hard After Failing at $3.107

June Nymex natural gas futures settled at $3.004, down 11.0 cents or 3.53% Wednesday after touching an eight-week high earlier in the session. The market pushed to $3.138, failed to hold above the key 50% level at $3.107, and reversed into the close. That kind of reversal on a session high has a name on the swing chart and it is not bullish. The closing price reversal top is now the pattern traders are watching and the bears have the better side of the trade until buyers prove otherwise.

Technical Outlook

June natural gas futures settled lower on Wednesday after failing to hold on to gains over a key 50% level that would have opened the door to an even steeper rise. The sudden closing price reversal top now puts the market in a position to weaken further with the first downside target the 50-day moving average, followed by a short-term 50% to 61.8% retracement zone.

The main trend is up according to the daily swing chart. A trade through $3.138 will signal a resumption of the uptrend. The main trend changes to down on a move through $2.676.

The intermediate range is $3.622 to $2.592. Buyers reached its 50% level at $3.107 on Tuesday then again on Wednesday, trading as high as $3.138, before reversing into the close.

A trade through $2.985 will confirm the closing price reversal top. This could trigger the start of a 2 to 3 day break. The first target is the 50-day moving average at $2.923. The next target zone is the retracement area at $2.865 to $2.800.

A trade through $3.138 will negate the potentially bearish chart pattern and signal strong buying. Since the main trend is up, buyers could step in on a test of $2.865 to $2.800.

Storage Expectations Stopped the Rally

Market consensus heading into Thursday’s Energy Information Administration report is calling for a 96 to 98 billion cubic foot injection for the week ending May 15. The five-year average for that week is 92 billion cubic feet. A build that size landing above the seasonal average reinforces the view that supplies remain comfortable and gives sellers a fresh argument at exactly the moment the market was trying to break through resistance.

Last week’s Energy Information Administration report showed an 85 billion cubic foot build, below the 91 billion cubic foot estimate, but that supportive number is now in the rearview mirror. Inventories are still sitting 1.6% above year-ago levels and 6.5% above the five-year seasonal average. The storage cushion has not disappeared and the market is trading like it knows Thursday’s number could make it worse.

Weather Gave Then Took Away

Early forecasts showed very warm to hot conditions across the East Coast and parts of the South through midweek with temperatures reaching the 80s and 90s across major population centers. That outlook lifted prices in the morning session and pushed June natural gas futures to the eight-week high at $3.138.

Then the models shifted. Forecasters projected Lower-48 gas demand could drop sharply from 79.5 billion cubic feet per day to 71.6 billion cubic feet per day as cooler temperatures spread across the Plains, Midwest, Texas and eventually the East heading into the Memorial Day weekend. NatGasWeather is projecting moderate demand over the next several days followed by lighter conditions afterward.

When the weather support that drove four straight sessions of buying starts to fade the market has nothing left to hold the gains and Wednesday showed exactly what that looks like.

Production Is Still Running the Show

Lower-48 dry gas production is estimated at 109.3 billion cubic feet per day, up 1.4% from a year ago and sitting near record levels. Domestic demand reached 73.0 billion cubic feet per day.

Liquefied natural gas export flows are estimated at 17.8 to 18.1 billion cubic feet per day but seasonal maintenance work at export facilities capped feedgas demand and left additional supply available for the domestic market. The supply picture has not changed enough to support a sustained rally through major resistance and Wednesday confirmed that. Production absorbs every bullish catalyst before it can build momentum and the storage number Thursday is going to remind traders of that again.

Oil’s Decline Pulled Natural Gas Down Too

Crude oil moved sharply lower Wednesday after reports that Middle East peace negotiations were entering later stages. That headline triggered a broad selloff across energy markets and June natural gas futures followed.

When oil drops hard on peace signals the energy complex sells off together and natural gas does not get a pass just because its own fundamentals are mixed. The geopolitical risk premium that had been providing a background bid across all energy markets started leaking out Wednesday and natural gas absorbed part of that exit.

What I’m Watching

The Middle East peace signals that pushed crude oil lower Wednesday are the fundamental development that changes the near-term picture for June natural gas futures. Lower oil reduces the inflation fear that has been keeping a bid under the entire energy complex.

A trade through $2.985 confirms the closing price reversal top and opens the door to the 50-day moving average at $2.923. Lose that and the retracement zone at $2.865 to $2.800 becomes the next test.

The Energy Information Administration storage report Thursday is the event that either confirms the bearish setup or gives buyers a reason to step back in. A build at 96 to 98 billion cubic feet and the bears have everything they need. A miss to the downside and the reversal top gets challenged fast.

More Information in our Economic Calendar.