Natural Gas News: Will 53 Bcf Be Enough to Narrow the Supply Gap?

Natural Gas Edges Higher on Short-Covering Ahead of EIA Report

U.S. natural gas futures settled slightly higher on Wednesday after recovering from early session weakness. The move represents short-covering ahead of Thursday’s government storage report.

With the trade to $2.819 earlier in the session, the market actually traded below the January 20 low. This means sellers have erased the huge rally from $2.867 to $4.085. If the market drops to $2.766 it will fill in a gap on the daily chart, and if it reaches $2.722, it will mean the entire late winter rally has vanished. This sell-off from the January top at $4.085 clearly demonstrates how weak demand has been and how traders feel about increased production.

On Wednesday, April Natural Gas closed at $2.868, up $0.037 or +1.31%.

One More Price Surge Possible Before the Shoulder Season

In addition to profit-taking and short-covering ahead of the government report, some concerns about the short-term weather outlook surfaced, leading to speculation that there may be one more price surge before the low-demand shoulder season begins in March. Nonetheless, I haven’t seen any unusual positioning, but I do know that anytime prices drop below $3.000 with winter still on the calendar, it will be perceived as a bargain by aggressive counter-trend buyers. To the trend trader, however, an upside price spike will likely turn into a selling opportunity just like last Monday’s gap opening.

EIA Storage Report Thursday Could Narrow the Deficit

Looking ahead to Thursday’s Energy Information Administration (EIA) weekly storage report, due to be released at 15:30 GMT, I’m seeing estimates ranging from 36 Bcf to 53 Bcf. A reading at the top of the range should help to reduce the current deficit over the 5-year average from 123 Bcf to 8 Bcf, according to The Wall Street Journal.

However, Ritterbusch and Associates’ analysts are still worried. They said in a note, “We feel that a deficit of around 30-40 Bcf could be maintained across next month in keeping the market sensitized to any unexpected loss of production or a swing in exports into new high territory.”

LNG Demand the Wild Card in an Oversold Market

NatGasWeather doesn’t see anything in the short-term outlook that could support the idea of a price spike caused by a sudden cold shot. They’re looking for low demand from Wednesday to Saturday. Unexpected production losses are rare, but a jump in LNG demand could be a surprise. Like I wrote earlier, prices are relatively cheap this late in the winter, so there is always the possibility of a short-covering rally because of an oversold market.

Trend Is Down with $3.150 the Key Level to Watch

Technically, the trend is down according to the swing chart and the 50-day moving average. Swing chart analysis has identified $3.150 as resistance and a potential trigger point for an acceleration to the upside. The 50-day MA is at $3.154. It forms a resistance cluster with the swing top, but a breakout could trigger a strong short-covering response. On the downside, key support is $2.627 to $2.604.

More Information in our Economic Calendar.