Natural gas futures extended this week’s gains following the release of a government report that showed a bigger-than-expected storage withdrawal.
June Natural Gas futures settled at $2.839, up $0.032 or +1.14%.
According to the U.S. Energy Information Administration, domestic supplies of natural gas fell by 18 billion cubic feet for the week ended April 20. Traders were looking for a decrease of about 12 billion cubic feet although the estimates ranged from 9 bcf to 22 bcf. The five-year average is a build of 60 bcf.
Total stocks now stand at 1.281 trillion cubic feet, down 897 bcf from a year ago, and 527 bcf below the five-year average, the EIA said.
Forecast
Despite another rare April storage withdrawal and subsequent short-covering rally that led to the futures contract’s highest close since March 13, the market isn’t expected to move much beyond yesterday’s high at $2.844, unless there is another round of cooler-than-average temperatures in several key demand areas.
Furthermore, the market is bumping up against a major Fibonacci level at $2.847 with a major top at $2.873 right above it.
With the May futures contract off the board, the focus is going to shift to the June futures contract and especially on expectations of the return of more seasonal temperatures.
The return of more seasonal temperatures may not be enough to drive the market sharply lower, but it should help hold prices in a trading range. This is because there is still some uncertainty about the direction of temperatures into mid-May. Additionally, cooler temperatures into mid-May should lower cooling demand, but underpin heating demand. This could support our conclusion of a sideways trade.
Looking at the daily chart and considering the latest weather forecast, we’re going to continue to say the direction of the market will be determined by trader reaction to the 50% pivot at $2.807.
A sustained move over $2.807 will indicate the presence of buyers with $2.847 the first target. A sustained move under $2.807 will signal the presence of sellers with potential targets at 2.792 and $2.766.