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James Hyerczyk
Natural Gas Pipeline
Natural Gas Pipeline

Natural gas futures are trading slightly lower early Wednesday following a massive spike to the upside the previous session. The rally was fueled by a near-term rise in demand and a drop in production. This is something bullish traders have been hoping to see for weeks. The price action suggests the market may have found support, but gains are likely to be limited because of fluctuations in supply and demand over the near-term.

At 0917 GMT, November Natural Gas futures are trading $2.893, down $0.003 or -0.10%.

Demand Analysis

According to data from S&P Global Platts, total U.S. demand is set to climb to 80.9 Bcf Tuesday, after averaging 77.4 Bcf/d in the last seven days.

This level of demand is not expected to hold, however, as temperatures are expected to drop back to seasonal norms. Platts Analytics is saying that over the next seven days, demand is expected to drop back to an average 77 Bcf/d.

The combination of the current storage deficit with the drop in production also played a factor in Tuesday’s spike in prices. Current national gas inventories sit at 2.636 Tcf, 18.4% below the five-year average of 3.232 Tcf, according to data from the U.S. Energy Information Administration (EIA).

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Supply Analysis

“U.S. dry gas production is estimated to drop 1.6 Bcf/d and stand at 82.4 Tuesday, after hitting a new record high of 84 Bcf the day prior”, according to data from Platts Analytics.

Forecast

This week’s price action suggests that traders have found a comfortable spot on the charts. The buyers are recognizing support at $2.747 to $2.737.

The main range is $3.013 to $2.747. Its 50% to 61.8% zone at $2.880 to $2.911 is the key balance area on the charts. The market is currently trading inside this zone. Trader reaction to this zone is likely to determine the near-term direction of the market.

Look for the rally to strengthen on a sustained move over $2.911. The next target over this level is a main top at $2.954.

A sustained move under $2.880 will indicate the presence of sellers. If this occurs then we could see a pullback into at least $2.823.

The market is likely to remain rangebound over the near-term if supply/demand hold steady. The return of hot weather could trigger another upward spike in prices.

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