Natural Gas Prices Slip as Buyers Remain Cautious Ahead of Weekly Storage Report

Key Takeaways

• The Energy Information Administration’s (EIA) upcoming inventory report is expected to show a steep natural gas storage pull, reducing the storage surplus by more than 100 Bcf compared to the five-year average.
• Short-term weather forecast indicates that the US will be cool to start the day with lows of 0s to 30s, followed by national demand easing to light levels Wed-Friday.
• Trader reaction to a minor pivot at $2.515 is likely to determine the direction of the May natural gas futures contract on Wednesday.

Overview

Natural gas futures are edging lower on Wednesday after failing to follow-through to the upside following a dramatic technical reversal bottom the previous session. The price action suggests buyers may be a little tentative due to uncertain weather forecasts ahead of Thursday’s weekly government storage report.

At 13:00 GMT, May natural gas is trading $2.408, down $0.077 or -3.10%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $7.74, up $0.28 or +3.75%.

Tuesday’s Recap

US natural gas futures rose over 5% on Tuesday due to short covering after hitting their lowest point in a month. The front-month gas futures for April delivery settled at $2.348 per million British thermal units (mmBtu) after hitting a low since February 23. Traders attempted to push prices to $2.00 mmBtu but there were not enough bearish factors to justify the slide.

Gas production declined earlier this year due to a price slump in January and December, and extreme cold in early February and late December cut gas output.

Gas stockpiles were 24% above their five-year average during the week ended March 10, and were expected to end 16% above normal during the colder-than-normal week ended March 17.

Despite near-term price softening, analysts see some long-term price support due to Europe likely being a strong buyer later in the summer.

Short-Term Weather Forecast

According to NatGasWeather for March 21-27, “Most of the US will be cool to start the day with lows of 0s to 30s, followed by national demand easing to light levels Wed-Friday as a warm ridge builds over the southern and eastern US with highs of 50s to 80s.

Another wet storm will slam California the next few days, then tracking into the central US late in the week. Additional weather systems will track across the western and central US this weekend into early next week with lows of 10s to 30s for moderate national demand, but not strong with the southern US comfortable with highs of 60s to 80s.”

Natural Gas Traders Anticipate Steep Storage Pull in Upcoming EIA Report

The Energy Information Administration’s (EIA) inventory report is expected to show a steep natural gas storage pull due to easing production and late-winter cold. Analysts predict that the next four reports could collectively reduce the storage surplus by more than 100 Bcf compared to the five-year average. Preliminary estimates suggest a decrease of 80 Bcf for the week ended March 17. However, the national supply often rebounds strongly in the spring after slipping in the winter, which could put downward pressure on futures as the shoulder season weather approaches.

Technically Speaking…

Trader reaction to a minor pivot at $2.515 is likely to determine the direction of the May natural gas futures contract on Wednesday.

Look for an upside bias to develop on a sustained move over $2.515 with $2.6908 the first target price and for the selling pressure to continue on a sustained move under this price with $2.240 the nearest target.