Natural Gas News: Will the 50-Day Hold as Production Tests the Natural Gas Rally?

Natural Gas Holds Below $3 After Thursday’s Reversal

October natural gas futures are higher Friday after Thursday’s late reversal. The contract pushed to $3.026 on the EIA storage report, stalled just short of the retracement zone at $3.044 and gave back the entire move into the close, settling down 1.45% at $2.913. Friday’s early rebound has October at $2.955 at 12:35 GMT, up $0.042 or 1.44%.

The market is back inside Thursday’s $3.026 to $2.885 range. Thursday showed that a bullish storage number alone is not enough to push natural gas cleanly through $3.00.

October Natural Gas Futures Technical Analysis

October natural gas futures are edging higher early Friday after Thursday’s volatile session. The market jumped to $3.026, but the rally stalled just short of the long-term retracement zone at $3.044 to $3.133.

Early weakness Friday was limited by the 50-day moving average at $2.898. The breakout over this indicator earlier in the week helped fuel the surge to $3.026.

If traders establish a support base on the strong side of the 50-day moving average, they can generate enough upside momentum to take another shot at $3.026 and the retracement zone at $3.044 to $3.133.

If the 50-day moving average fails as support, sellers will target the next 50% level at $2.847 and the last swing bottom at $2.832. The main trend is up according to the daily swing chart, but a break through $2.832 will change the main trend to down.

Hot weather remains supportive, but firm supply and the tendency for natural gas rallies to attract selling remain the main obstacles above $3.00. The 50-day moving average is the level that decides whether this week’s breakout holds or turns into a failed move.

The EIA Number Was Bullish and the Market Gave It Back

The EIA reported a 30 Bcf increase in working gas for the week ended August 28. The market expected 32 to 33 Bcf. The five-year average for the week is 37 Bcf. October futures pushed to $3.026 on the number. Seven weeks of nearby contract highs. Then the market reversed and settled at $2.913.

Working gas inventories are still 5.2% above the five-year seasonal average. Stocks are 1.8% below last year. The 30 Bcf build was below normal but it was still a build. The refill season is not producing the large injections sellers want. It is still producing injections. Thursday’s reversal from $3.026 said the market is not ready to trade through $3.00 on one below-average report with storage still running above the five-year norm.

Heat Is Holding Demand Longer Than Normal

Forecasts turned hotter across the central United States for September 8-12. Above-normal temperatures are expected to spread across much of the country from September 13-17. Power generators are still pulling gas for cooling at a time of year when the market normally expects that demand to start fading.

Lower-48 gas demand was estimated at 79.4 Bcf per day Thursday, up 5.8% from a year ago. U.S. electricity output in the week ended August 29 rose 12.56% year over year to 96,357 gigawatt hours. The 52-week total was up 2.63%.

A cooler model run can change the demand picture quickly in September. Thursday’s price action above $3.00 said traders are paying for the heat in front of them. Thursday’s close below $2.92 said they are not paying much beyond that without another reason.

LNG Feedgas Near 19 Bcf and Europe Is Still Short

LNG feedgas to U.S. export terminals was estimated at 19.2 Bcf per day Thursday, down 1.7% from the prior week but still near the strongest levels of the year. Freeport is back from maintenance. Golden Pass is still ramping. The Gulf Coast is pulling gas for exports at the same time Texas power plants are burning it for cooling.

European gas storage was about 65% full at the end of August against a five-year seasonal average near 82%. The Strait of Hormuz remains disrupted. Qatar sends about 10% of Europe’s gas supply through that waterway. European buyers are not stepping away from U.S. cargoes with winter approaching and storage running that far behind.

Production at 114 Bcf and Rigs Still Climbing

Lower-48 dry gas production was estimated at 114.2 Bcf per day Thursday, up 5.6% from a year ago. Baker Hughes reported active gas rigs rose by five to 132, a five-month high sitting just below February’s three-year high of 134. Nobody is stepping back near $3.00.

The EIA raised its 2027 production forecast to 116.0 Bcf per day from 115.3 in July. The EIA also expects storage to reach 3,985 Bcf by the end of October, the highest in 10 years and about 5% above the five-year average. That forecast is the ceiling over every weather-driven rally. Thursday’s reversal from $3.026 was the market running into it.

What to Watch

The next weather runs and next Thursday’s storage report decide whether buyers get another shot above $3.00. The 30 Bcf build was below the five-year average and the heat is extending into mid-September. LNG feedgas is near 19 Bcf per day. European storage is running well below normal. The demand side has reasons to stay involved on pullbacks toward the 50-day.

The near-term read stays bullish while October futures hold above the 50-day moving average at $2.898. Thursday’s reversal from $3.026 stalled just short of the retracement zone at $3.044 to $3.133 and that zone is still the first real test above $3.00. Storage 5.2% above the five-year average, production at 114.2 Bcf per day and gas rigs near a three-year high are the reasons the market could not hold $3.00 Thursday. The 50-day decides whether this week’s breakout holds or turns into a failed move.

More Information in our Economic Calendar.