Natural Gas Price Analysis for January 23, 2018

Natural gas prices continued to consolidate on Monday, trading in a relatively tight range after breaking out in mid-January.  Inventory levels continue to decline, despite last weeks draw that was somewhat smaller than expected.  The weather in late December and early January was much colder than normal driving up heating demand which depleted the inventory overhang. In fact, inventories are now below the 5-year average range, but it now appears that the cold weather has abated.

Technicals

Natural gas prices were higher by 1%, and are forming a bull flag pattern which is a pause that refreshes higher. Support is seen near the 10-day moving average which coincides with a downward sloping trend line near 3.09. Target resistance on natural gas is seen near the May highs at 3.41. Momentum remains positive but its decelerating. The MACD (moving average convergence divergence) index is printing in the black, but the trajectory of the MACD histogram is negative which reflects consolidation. The RSI (relative strength index) is moving sideways which reflects consolidation. The current reading of 62, is on the upper end of the neutral range, slightly off the highs seen over the past 3-months.

Weather Should be Neutral

The weather should not generate any significant changes to the demand for natural gas.  The weather is expected to be colder than normal over much of the upper mid-west, while the east coast is expected to be warmer than normal. The 6-10 day outlook is very similar to the 8-14 day outlook. The trajectory of the inventory declines should stabilize, which is reflected in the recent price action.

Natural Gas Production Continues to Remain Robust

Production data released by the Energy Information Administration for January 9, 2018, estimates that U.S. dry natural gas production averaged a record-high 78.1 billion cubic feet per day during December 2017, topping the previous estimated record set the month before when dry U.S. production averaged 77.3 Bcf per day. The EIA’s short-term energy outlook forecasts that dry U.S. natural gas production will average 73.6 Bcf per day in 2017. STEO’s forecast 2017 production is still lower than the record annual average U.S. natural gas production of 74.2 Bcf per day in 2015.