Natural Gas News: Weather Bounce Fades as Bearish Market Trend Dominates

Natural Gas Futures Struggle to Find Direction as Bears Stay in Control

U.S. natural gas futures are trading flat early Tuesday, giving back some of their gains from yesterday’s session. The trend is down according to the daily swing chart, a trend line and the 50-day moving average. The range has been tight and volume light for the past four days, which suggests an oversold market especially as it hovers near previous bottoms at $2.825 and $2.807. They are slightly above the mid-January bottom at $2.689.

At 07:50 GMT, May Natural Gas is trading $2.802, down $0.009 or -0.32%.

Technical Outlook

On the upside, trend line resistance drops in at $3.018 today. It has been guiding the market lower since the January 30 top at $4.075. A second layer of resistance is the swing top at $3.060, followed by the 50-day moving average at $3.091. Overtaking $3.018 and $3.060 will shift momentum to the upside, but I don’t think we can really think about the long-side unless buyers can overtake the 50-day moving average with conviction.

Bottom picking with the January bottom at $2.689 will be a risky trade because you’d actually be betting against strong production, favorable weather and rising storage.

Weather, Supply and Global Disruptions Pulling the Market in Different Directions

Early Tuesday, prices are trying to stabilize after a prolonged sell-off since January with weather, supply growth, and global disruptions all pulling the market in different directions. On Monday, prices rose with the rebound driven largely by colder U.S. forecasts. However, the bigger picture still points lower as traders try to find a balance between strong production against tightening global gas flow difficulties.

Colder temperatures across the Upper Midwest through April 10 was enough to trigger a mild short-covering rally on Monday, lifting prices slightly off a multi-month low. Weather remains the key focus for traders, who are trying to find an edge. Even though it’s April, brief cold snaps can occur that can shift sentiment quickly, especially in a market currently dominated by short-sellers. The problem I’m seeing is overall weak demand that is even running below last year’s level. This type of situation tends to limit the upside momentum.

Production Near Record Highs, Storage Levels Adding to Bearish Tone

Production is the story here and it isn’t a bullish one. Output is near record highs and still climbing year-over-year. Rig counts have been grinding higher for a year and a half. Then the EIA came out and raised its production forecast on top of that. There’s no supply story that favors the bulls.

Storage is the same problem. We’re above last year and above the five-year average. Last week’s injection didn’t surprise anyone but it confirms what the numbers have been saying all along. This market is loose and the bears know it.

Global Supply Risks Starting to Bite

The domestic picture is loose but the global picture is a different story. Qatar’s Ras Laffan facility took damage and the Iran conflict is cutting into global LNG supply in a real way. Tanker traffic through the Strait of Hormuz is restricted and that’s shutting off flows to markets that depend on it.

The result is more demand coming toward U.S. LNG exports, which are already running higher. It hasn’t turned the domestic market bullish yet but it’s worth watching. If those export numbers keep climbing, the supply surplus here starts to shrink faster than the bears are pricing in.

Market Outlook

The path of least resistance is still lower. Weather can pop this market for a day or two but production and storage aren’t going to let any rally run very far. The global supply situation is a real problem for Europe and Asia right now. For the U.S. it’s more of a slow burn that could matter more later in the year if export demand keeps pulling on domestic supply.

More Information in our Economic Calendar.