Natural Gas Forecast: EIA Weekly Storage Builds Expected to Increase Volatility

Natural Gas Highlights

• Record natural gas extraction, mild weather, decreased LNG exports
• Third consecutive day of losses for front-month natural gas futures
• Potential for 3-4 consecutive EIA weekly storage builds of 100 Bcf or more

Natural Gas Overview

Natural gas is inching lower on Thursday as traders await the release of the government’s weekly storage report.

At 13:00 GMT, Natural Gas is trading $2.016, down $0.002 or -0.10%. On Wednesday, the United States Natural Gas Fund ETF (UNG) settled at $6.30, down $0.19 or -2.93%.

US Natural Gas Futures Drop on Multiple Factors

On Wednesday, U.S. natural gas futures dipped 2% to a one-week low due to a combination of factors. Record amounts of gas being extracted by drillers, mild weather keeping demand low, and maintenance shutdowns at liquefied natural gas (LNG) export plants, resulting in decreased gas flow.

This decline has put the front-month on track for a third consecutive day of losses. This is a trend not seen since late March. Refinitiv, a data provider, reported that the average gas output in the U.S. Lower 48 states has risen to 101.5 billion cubic feet per day (bcfd). So far in May, it is up from the record high of 101.4 bcfd in April.

Prices Trend Lower Due to EIA Storage Report Concerns

The selling trend of June 2023 natural gas prices for the third consecutive session was attributed to several factors, including the potential for 3-4 consecutive Energy Information Administration (EIA) weekly storage builds of 100 billion cubic feet (Bcf) or more.

This trend is expected to increase volatility as the morning EIA storage report is likely to show a build of +52-54 Bcf, which is smaller than the 5-year average of +78 Bcf. Although most of the US experienced cooler than usual temperatures, except for parts of the West, a build of +53-54 Bcf is still anticipated.

However, if the report exceeds expectations in a bullish way, light wind energy generation will likely be blamed for the missed forecast.

Technical Analysis

Investors in Natural Gas are struggling to find a catalyst to drive the market higher, given the moderate weather conditions during the shoulder season.

Currently, the daily technical perspective shows that Natural Gas is trading below the pivot point of $2.168, creating a new resistance level.

A sustained move above this pivot point may indicate an increase in buying pressure. And potential for a surge towards the resistance level (R1) at $2.432 in the short term.

However, if the price remains below the pivot, it could indicate the presence of sellers and result in a near-term decline towards the support level (S1) at $1.962.