Natural Gas News: Weather Shift Sends Natural Gas Futures Lower Friday

Weather Cooled. So Did Prices.

June Nymex Natural Gas settled at $2.905 per MMBtu on Friday, down 11.1 cents or 3.68%. That is the lowest level in a week. Forecast models shifted toward seasonal temperatures through the end of May and traders did not wait around. The domestic supply picture is still heavy, storage is comfortable, and production keeps climbing. Global LNG disruptions are keeping a floor under this market but they were not enough to hold prices on Friday.

June Natural Gas Technical Analysis

June natural gas futures finished lower on Friday for the third straight session. The main trend is up, but momentum is pointing lower. A trade through $3.138 will signal a resumption of the uptrend. Taking out $2.676 will change the main trend to down.

The main range is $2.592 to $3.138. Its 50% to 61.8% retracement zone at $2.865 to $2.800 is the primary downside target. Trader reaction to this area is likely to determine the direction of the market next week. Since the main trend is up, I’m looking for buyers to show up on the first test of the zone.

A sustained move over $2.865 will indicate the presence of buyers. A sustained move under $2.800 will signal the presence of sellers.

On the upside, resistance is the 50% level at $3.107 and the swing top at $3.138. Overtaking this area will put the 50% level at $3.405 and the 200-day MA at $3.424 back on the radar.

Traders should also be monitoring the price action and order flow at the 50-day moving average at $2.914 since many natural gas traders use it as their trend indicator.

Ras Laffan Keeps U.S. Exports Moving

Global LNG markets are tighter than domestic conditions suggest. Damage to Qatar’s Ras Laffan export facility cut a piece of worldwide LNG supply and any prolonged reduction in output opens the door wider for U.S. cargoes. Shipping through the Strait of Hormuz is still restricted. If those routes stay tight, European and Asian buyers keep coming to the U.S. for supply.

LNG flows into U.S. export terminals are running at roughly 18.3 billion cubic feet per day. That is strong demand from the export side and it is one of the few things working in favor of prices right now.

Production Has No Reason to Slow Down

Lower-48 dry gas output recently hit 110.1 billion cubic feet per day. That is up nearly 2% from a year ago. The Energy Information Administration raised its forecast for U.S. dry natural gas production to 110.61 billion cubic feet per day from an earlier estimate of 109.60 billion cubic feet per day.

Demand went the other direction. Lower-48 gas demand fell almost 4% from year-ago levels. Active gas rigs dropped by three to 125 but the broader trend still points toward expanding capacity. Producers are drilling when conditions support it and right now conditions support it.

Storage Says There Is No Shortage

The latest weekly report showed a build of 101 billion cubic feet. That came in slightly above expectations and above the five-year average for this time of year. Total working gas in storage is now 2,391 billion cubic feet. That is 33 billion cubic feet above last year and 149 billion cubic feet above the five-year average.

Storage is running more than 6% above normal seasonal levels. Earlier this year those kinds of numbers helped push nearby futures to their lowest level in roughly a year and a half. Nothing in the current storage data suggests that picture has changed.

Power Burn Is Helping. Barely.

U.S. power generation climbed more than 2% from year-ago levels. Gas-fired plants still represent a large share of total generation so stronger electricity output does support natural gas demand. The problem is that the support is not large enough to offset what is happening on the supply side.

The Heat Disappeared

Forecast models shifted toward mostly seasonal temperatures through the end of May. For natural gas that is a direct hit. Warmer temperatures increase air-conditioning use, raise electricity demand, and pull more gas into power plants. Cooler temperatures do the opposite. Friday’s selloff was the market pricing in lower power demand over the next two weeks.

What I’m Watching

Weather and storage are running the show right now. The heat forecasts that were supporting prices earlier in the week disappeared and the supply side gave traders no reason to buy the dip. Production is near record levels, storage is 149 billion cubic feet above the five-year average, and demand is falling year over year.

LNG exports at 18.3 billion cubic feet per day and the Ras Laffan disruption are keeping a floor under this market but they are not strong enough to reverse the domestic picture alone. A sustained shift toward summer heat in the forecast models changes this quickly. Until that shows up, the pressure stays to the downside.

Technically, the near-term direction comes down to trader reaction to the retracement zone at $2.865 to $2.800. The main trend is still up so buyers showing up on the first test of that zone would not be a surprise.

More Information in our Economic Calendar.