Natural Gas News: Bearish Forecast as Weather Pressures Futures Market

Natural Gas Claws Back After Brutal Selloff

Natural gas futures are trying to bounce back Tuesday after sharp selling pressure pushed prices to a three-week low. Traders are sorting through bearish signals at home and tighter supply conditions overseas. The market wants to stabilize but supply is still running ahead of demand and seasonal consumption is already falling off.

With the trend down according to the swing chart and the moving averages, our bias is to the downside. On Monday, U.S. natural gas futures failed to overcome the 50-day moving average at $3.132 and took out a pair of minor swing bottoms at $2.965 and $2.919, confirming the shift in momentum. A break through the swing bottom at $2.807 will reaffirm the downtrend with $2.689 the next major target.

Overcoming the 50-day moving average will be the first sign of strength. This will shift momentum to the upside and set up a test of the minor top at $3.292, putting the major retracement zone at $3.405 to $3.570 back on the radar. Inside this zone is the 200-day moving average at $3.489 and the main swing top at $3.488.

Bearish Weather Forecast

The weather is the story right now. Forecasts show above-average temperatures across most of the U.S. through early April. Heating demand is falling faster than normal and shoulder season is already here. The late-season demand cushion that usually supports prices into late March simply isn’t showing up this year. No cold weather is coming to change that. For traders the path of least resistance is lower. Rallies get sold and prompt-month contracts stay under pressure until the forecast gives bulls something to work with.

Surplus is Building

U.S. dry gas production is running near record levels, recently around 112 to 113 Bcf/d. Demand isn’t keeping pace and the gap keeps growing.

The latest storage report made it worse. A +35 Bcf injection came in for mid-March, a time of year when the market usually pulls gas out of storage, not puts it in. Stocks are now running above last year and slightly above the five-year average. The market flipped into surplus earlier than most traders expected.

Early injections tell traders one thing. Unless production slows down, every rally is a selling opportunity. The market was tightening for a while. Now it’s going the other way.

Natural Gas Underpinned by LNG Demand

With weather improving, production rising, and domestic demand falling, LNG exports are one of the few things still supporting prices. Europe keeps pulling on U.S. supply and that’s helping. But export capacity is nearly maxed out. There’s only so much gas the terminals can handle. The U.S. is still building storage even with exports running strong. That tells me LNG alone can’t offset what’s happening on the supply side. It’s keeping prices from falling apart. It’s not pushing them higher.

Global Supply Disruptions Add a Wildcard

Qatar’s Ras Laffan export facility took significant damage and repairs are going to take years. That knocked out a meaningful chunk of global LNG capacity. Middle East tensions have also squeezed flows through key shipping routes, cutting supply to Europe and Asia and pushing international prices higher.

U.S. exports could benefit over time. Traders aren’t buying it yet. Right now the domestic oversupply story is drowning out everything else.

Producers Aren’t Slowing Down

Production isn’t letting up. Most of the gas hitting the market right now is associated gas from oil wells. Crude prices are high enough that producers keep drilling for oil and the gas comes along for the ride. Lower gas prices don’t change that math.

West Texas tells the whole story. Prices went negative there. Pipelines are backed up and gas has nowhere to go. Producers are paying to move it. Nothing changes until drilling slows down or new pipeline capacity comes online.

Market Forecast

Tuesday’s bounce doesn’t change the bigger picture. Warm weather, early storage builds, and record production are all pointed in the same direction. Global supply disruptions and LNG demand are softening the blow but not reversing it. The domestic surplus is running the show right now. Sellers are going to show up on every rally until the weather turns cold or production starts to come down.

More Information in our Economic Calendar.