Natural Gas News: Weather Remains in Control of Natural Gas Futures This Week

July Natural Gas Falls as Weather Forecasts Flip Late

July Nymex Natural Gas settled at $3.220, down 5.3 cents or 1.62% for the week. The contract traded as high as $3.396 and as low as $3.099. Weather ran the entire week. Warmer forecasts early on pushed prices toward the resistance at $3.387 to $3.396. Updated models late in the week pulled cooling demand projections lower in the 9-to-15-day window. That was enough. Bulls that had been buying the heat forecasts all week turned around and liquidated on Friday.

The market got to the line it needed to break and could not get through it. The 50% level at $3.387 and the swing top at $3.396 capped the rally for the second week in a row. The failure to hold gains after a bullish storage report on Thursday told the whole story. Weather is the only thing this market is trading right now.

Storage Builds Keep Coming In Light

The Energy Information Administration reported a 95 bcf injection for the week ending May 29. That came in below expectations and below the five-year average. The surplus above the five-year average is still there but it has been narrowing steadily. The pace of inventory growth has slowed and that is the number the bulls are watching.

Stronger power burn and softer production are starting to eat into the overhang that weighed on prices during the first quarter. The market is not tight. But it is not as loose as it was three months ago and the direction of the builds confirms that.

The storage number triggered a sharp rally on Thursday. It did not hold. Traders took the bullish data, bid the market up, and then handed it right back on Friday when the weather models shifted cooler. A supportive storage report that cannot hold a rally for more than one session tells you the market needs more than inventory data to break through $3.396.

Weather Forecasts Giveth and Taketh Away

Hotter forecasts early in the week put the bid under July Nymex Natural Gas. Above-average temperatures across the Midwest and Northeast through mid-June pushed expectations for stronger power burn and heavier air conditioning demand. Traders bought it.

Then the models updated. The 9-to-15-day outlook pulled back on cooling demand and the longs started exiting. Friday’s 4.28% decline was the result. The money that came in on the heat forecasts went right back out when the forecasts softened.

This market has shown all spring that it will rally on hot weather and sell on anything less. Until the heat actually arrives and stays, every rally runs into sellers at $3.387 to $3.396 who do not believe the demand story lasts long enough to justify paying up.

LNG Maintenance Caps the Upside

LNG feedgas flows to U.S. export terminals declined during the week on seasonal maintenance at several major facilities. The drop in export demand put more gas back into the domestic market at exactly the wrong time. Storage injections are still running. Production is still elevated. And now the LNG pull that was keeping the balance sheet from getting looser just got weaker.

The maintenance is temporary. Everyone knows that. But traders price what is in front of them, not what is coming back in three weeks. Until the terminals come back to full utilization and feedgas flows recover, the bears have an extra source of domestic supply working in their favor.

Production Eases but Not Enough

Lower-48 dry gas production dipped from recent highs during the week. The decline helped offset some of the demand loss from LNG maintenance and contributed to the below-average storage build.

Production is still historically strong. Producers are not pulling back in a meaningful way. But the easing was enough to keep the storage numbers from printing an ugly surplus build. If output had stayed near records while LNG demand dropped, the injection would have come in well above expectations and the Thursday rally never would have happened.

Weekly July Natural Gas Technical Analysis

July Natural Gas futures edged higher early in the week, slightly piercing a key 50% level before turning south and posting a minor reversal. I don’t think the move is long-term damaging, but was most likely a reset of the market that has been drifting higher since late April/early May. We also just finished the first week of June so we really weren’t counting on a prolonged hot spell. Nonetheless, a strong base appears to be forming that could provide support once summer officially begins and air conditioning demand surges throughout the country.

The main trend is down according to the weekly swing chart. A trade through $3.881 will change the main trend to up, while a move through $2.893 reaffirms the downtrend. The minor trend is up, which is helping to drive some of the upside momentum. It will change to down if $2.978 fails to hold.

The minor range is $2.893 to $3.396. Its 50% level at $3.145 is potential support. Trader reaction to it is likely to control the direction of the market this week.

The intermediate range is $3.881 to $2.893. Its 50% level at $3.387 essentially stopped the rally at $3.396 last week.

The long-term range is $4.408 to $2.893. Its 50% level is the major resistance and pivot level. It combines with the 52-week moving average to form a resistance zone at $3.651 to $3.713, respectively.

Watch the price action and read the order flow at $3.145 this week. It will tell us whether sellers are in control and if traders are going to try to solidify support near $2.978 to $2.893. A sustained move over it will signal the presence of buyers. They could take another shot at a breakout over $3.396.

What to Watch

Weather is the only catalyst that matters for July Nymex Natural Gas right now. The storage trend is tightening. Production eased. But the market showed this week that none of that is enough to push through $3.396 without sustained heat backing it up. The 9-to-15-day forecast shift killed Thursday’s rally in one session. If updated models this week bring the heat back, the bulls take another run at the resistance. If the forecasts stay soft, the market drifts toward support and tests whether $3.145 holds.

LNG maintenance is still limiting export demand. That keeps extra gas onshore and working against the bulls until the terminals come back to full rates. The timing matters. Every week that feedgas flows stay below normal is another week the domestic surplus has room to build.

The pivot at $3.145 controls the direction this week. A sustained hold above it keeps buyers in the dip-buying mode and sets up another shot at $3.387 to $3.396. A break below $3.145 shifts momentum toward the sellers and puts $2.978 to $2.893 back in play. The weekly trend is still down. The base that has been forming since late April needs the heat to arrive before it becomes a launching pad.

More Information in our Economic Calendar.