Natural Gas News: Weekly Outlook Sees Futures Pressured by Storage Surplus, War Premium Holds

Natural Gas Tries to Bounce After Two Straight Weekly Losses

U.S. natural gas futures are trying to bounce back on Monday, following a second consecutive weekly loss. Last week, April Natural Gas futures settled at $3.095, down $0.036 or -1.15%.

The Range Is Wide and the War Premium Is Holding the Floor

The trend is currently lower by two metrics, the swing chart and the 52-week moving average. The main resistance is a pair of tops at $4.085 and $4.118. The main support is $2.775 and $2.604. Inside the $4.118 to $2.604 range is the $3.361 to $3.540 retracement zone. The recent rally during the week-ending February 13 to $3.494 was stopped by the retracement zone.

Since December, April natural gas futures broke to the weak side of the 52-week moving average twice. The first sell-off during the week-ending December 12 triggered a steep break from $3.685 to $2.604. The second sell-off from $3.644 was stopped by $2.775.

I think it’s important to watch the lower end of the range because the formation of the secondary higher bottom at $2.775 in late February suggests supply worries. This is because it was formed just days before the war between the United States and Iran started on February 28. Anything above this level should be considered the “war premium”.

Traders should note that since the market is now in shoulder season where storage tanks usually fill because of strong production. Demand is usually steady to lower since it’s neither too hot nor too cold. To see a bottom form at this time is unusual but that’s the impact of speculators hedging against a supply disruption.

The Strait and Qatar Are the Key Fundamental Drivers

The key fundamental underpinning prices is the war in the Middle East. The closing of the Strait of Hormuz and damage to natural gas facilities in Qatar is expected to limit the transportation and production of natural gas by 20% and 17% respectively.

Weather and Maxed Out LNG Exports Are Keeping a Lid on the Rally

Keeping a lid on the rally range from weather to maxed out LNG exports. Weather data from NOAA and NatGasWeather shows a shift to warmer-than-normal conditions across much of the U.S. through late March. This is reducing heating demand faster than expected for this time of year. As a result, weather is currently a bearish driver, limiting rallies and keeping demand expectations subdued.

Storage Is Building and Production Is Near Record Highs

Last week, the EIA reported a +35 Bcf injection, lifting storage to 1883 Bcf for mid-March. Stocks are now 177 Bcf above last year and 47 Bcf above the five-year average. The early season build confirms that supply is already exceeding demand, clearly a bearish signal.

Production is also running high. The latest figures are running around 113 Bcf/d, near record highs. Strong production is one of the key reasons rallies have been limited. LNG export demand is holding near 19-20 Bcf/d supported by steady global demand. This number is supportive, but not bullish. There is demand coming out of Europe because of the war in the Middle East, but LNG facilities are maxed out and they can’t move enough to offset some of the production.

More Information in our Economic Calendar.