Natural Gas Tests 50-Day EMA as Oversupply Weighs

Natural Gas Technical Analysis

The natural gas markets have slipped right off the bat here on Tuesday to test the 50-day EMA in the October contract. It’s worth noting that temperatures in the eastern part of the United States, as well as the South, are a little bit warmer than anticipated this time of year for this coming week, and that will put a bit of a drag on natural gas as the drawdown may not be as quick as people had hoped. It pushes it back a week essentially.

Keep in mind that the Lower 48 dry gas build has recently hit a near-record 115 billion cubic feet on Sunday, and that means that the supply is more than abundant. This being said, it’s certainly a situation where sooner or later we will get temperatures that help sustain a rally, but the EIA’s October outlook, released just a couple of weeks ago, suggested that storage at the end of October would be at a 10-year high. It’s 5% above the 5-year average, and this also was in conjunction with the EIA raising its dry gas estimate from 115 billion cubic feet to 116, and therefore we have a major problem. We have an oversupply of natural gas.

Seasonal Demand and Technical Trading Range

Now, having said that, the recent print was 15 billion cubic feet and the forecast was right around 20, so that did help a little bit. That’s part of the jump. It was also the rollover into October.

Over time, temperatures start to drop; that does start to lift natural gas. It is a seasonal market after all, but at this point in time, this is a market that looks like it’s just stuck in a range between $2.60 and $3 until we break out of that range. It probably is going to be a very choppy, short-term-based type of trading environment.

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