Natural Gas Breaks Out as Warm Weather Points to Increasing Demand

Natural gas prices surged higher rising more than 3.4% on Tuesday as warmer than normal weather is now expected to cover most of the United States for the next 8-14 days. Weather models changed sharply from Monday, which caught many traders buy surprise. Warmer than normal weather increases cooling demand which in turn increases natural gas demand. With inventories below the average of the last 5-years, prices quickly broke out.

Natural gas surged higher breaking through resistance which is now support near the 200-day moving average 2.87.  Resistance is now seen near the December highs at 3.21. Momentum has turned positive as the MACD (moving average convergence divergence) index generated as a crossover buy signal. The only caveat is that the fast stochastic is printing a reading of 99, above the oversold trigger level of 80, which could foreshadow a correction.

Traders now await this weeks inventory report

Traders now await this weeks inventory report. Last week, net injections top the 100 Bcf threshold in May for the first time since 2015. Net injections into storage totaled 106 Bcf for the week ending May 11, compared with the five-year average net injection of 87 Bcf and last year’s net injections of 64 Bcf during the same week. This report week had the largest reported May weekly net injection since May 29, 2015, when net injection reached its record high of 132 Bcf. Net injections during the week averaged 15.1 Bcf/day; net injections will have to average 13.1 Bcf/day for the remainder of the refill season to match the five-year average level (3,806 Bcf) by October 31. Working gas stocks totaled 1,538 Bcf, which is 501 Bcf lower than the five-year average and 821 Bcf lower than last year at this time.

The U.S. Economy is Growing

U.S. May Philly Fed’s non-manufacturing sector jumped 13.5 points to 39.5 after dipping 1.6 points to 26.0 in April. This month’s level is the highest since the 46.6 from June 2015. The components were mixed with full time employment halved to 7.7 from 15.8, while part-time employment rose to 11.4 from 8.7. New orders tripled to 36.2 versus 12.5. Also prices paid increased to 33.8 compare to 26.0, with prices received climbing to 22.6 versus 12.1. The 6-month index rose 8.6 points to 50.1. This report is consistent with most of the Q2 data are showing a solid pick up in growth from Q1. Indeed, the Q2 headline index is averaging 32.8 versus Q1’s 29.7.