Natural Gas Prices Forecast: Traders Bracing for EIA Storage Report Impact

U.S. natural gas prices are experiencing a downturn on Thursday, unable to sustain the upward movement seen on Wednesday. The market’s attention is now sharply focused on the upcoming U.S. Energy Information Administration (EIA) storage data, with traders preparing for potential volatility. The price increase on Wednesday was largely influenced by Chesapeake Energy’s announcement of a production cut in 2024 due to low gas prices.

At 12:23 GMT, Natural Gas futures are trading $1.731, down $0.042 or -2.37%.

EIA Weekly Storage Report Anticipation

Traders are bracing for today’s EIA storage report, with market expectations pointing towards a draw of approximately -65 Bcf, significantly less than the five-year average draw of -168 Bcf. This forecast is in line with the warmer-than-normal conditions across most of the U.S., except for some areas in the West. A draw near -63 Bcf is anticipated, which could increase surpluses to around +450 Bcf, a crucial figure for market players.

Weather Patterns Influencing Demand

According to NatGasWeather for the period of February 22 to 28, a warm ridge is set to dominate the interior U.S., leading to mild temperatures from the 40s to 80s in various regions. While the West faces weather disturbances with rain and snow, the Midwest and Northeast are expecting a chilly system over the weekend. This could cause a slight increase in national demand, but overall, the demand is projected to be low to moderate due to the predominantly mild conditions.

Chesapeake Energy’s Production Cut and Market Reaction

Chesapeake Energy’s decision to reduce its production outlook for 2024 has been a key factor in the recent price movements. The company is planning to cut its production to 2.65-2.75 billion cubic feet per day (bcf/d), down from 3.43 bcf/d in fiscal 2023. This move is a reaction to the oversupplied market and falling prices, which have dipped below $2. The reduction in production is seen as a necessary step to support the upward price trend, especially with the current warm weather forecasts reducing heating demand.

Broader Market Context

Despite Wednesday’s 13% surge in prices, natural gas futures remain down by 15.6% in February and nearly 30% this year. The market is dealing with high domestic production levels, above-average storage, and a warmer-than-normal weather outlook. The significant short position in the market also suggests the potential for a rally driven by short-covering.

Looking Ahead: LNG Exports and Production Trends

The U.S. LNG export capacity is expected to nearly double in the next four years, which could significantly increase gas demand. However, the current low prices, driven by mild winter conditions and high output levels, have led to a decrease in drilling activities. Even so, high crude prices might still encourage oil drilling in shale basins, which could inadvertently maintain robust gas production due to associated gas.

In summary, the natural gas market is currently dealing with a mix of storage data, weather patterns, production adjustments, and broader market factors. Traders are closely watching these elements to determine the direction of future price movements.

Technical Analysis

Natural gas prices are lower on Thursday. Despite yesterday’s sizeable short-covering rally, the main trend is still down. A trade through $1.522 will signal a resumption of the downtrend. The market isn’t close to changing the main trend to up, however, there is room to the upside for a meaningful short-covering rally with the 50-day moving average at $1.998 the primary upside target.

The significant short position in the market also suggests the potential for a short squeeze.