Natural Gas Forecast: Surplus Concerns Weigh Despite Cold Front

Highlights

• Lower heating demand despite colder weather forecast
• Storage inventories increase by 75 Bcf, surpluses expand to 488 Bcf
• Rally towards $3 requires production drop or surpluses below 300 Bcf

Overview

Natural gas is edging lower on Friday shortly after the regular session opening in New York. Traders are assessing the impact of forecasts calling for colder weather and higher heating demand over the next week than previously expected. Traders are also reacting to Thursday’s bigger-than-expected storage build.

At 12:00 GMT, Natural Gas is trading $2.167, down $0.004 or -0.18%. On Thursday, the United States Natural Gas Fund ETF (UNG) settled at $7.01, up $0.02 or +0.29%.

Short-Term Weather Outlook

NatGasWeather’s forecast for April 20-26 indicates a lull in the eastern half of the US on Thursday and Friday, with temperatures in the 60s to 80s and low national demand.

However, a potent spring storm is expected to sweep through the central US over the next few days, with powerful thunderstorms preceding a cold front, followed by snow showers and lows ranging from the 20s to lower 40s.

As the cold front advances towards the East during the weekend and early next week, national demand is expected to surge to strong levels.

US Natural Gas Storage Surpluses Continue to Expand, Hitting Bullish Investors

The latest Energy Information Administration (EIA) inventory report revealed that storage surpluses in the US natural gas market continue to expand, which is unfavorable for bullish investors.

For the week ending April 14, storage inventories increased by a higher-than-usual 75 Bcf, which was at the upper end of expectations. However, considering the total degree days, the situation could have been worse, as there were several days with near-record low demand.

Total working gas in storage climbed to 1,930 Bcf, expanding the surplus to year-earlier levels to 488 Bcf and to 329 Bcf above the five-year average.

NatGasWeather warned that surpluses could further increase to over 350 Bcf after the next EIA report. However, the following two inventory reports are expected to show smaller-than-normal builds to reduce surpluses slightly below 350 Bcf.

To see a rally towards $3, US production needs to drop below 99 Bcf/d. Or weather patterns will need to play a significant role in reducing surpluses to below 300 Bcf.

Technical Analysis

From a daily technical viewpoint, Natural Gas is trading on the weak side of its daily pivot at $2.353, but above the nearest support at $1.904. The long-term technicals are bearish, but the short-term outlook indicates a developing upside bias.

A sustained move over the pivot at $2.353 will indicate the buying is getting stronger. This could lead to a near-term acceleration to the upside with R1 at $2.727 the nearest target.

However, a sustained move under Pivot at $2.353 will indicate the short-term selling pressure is getting stronger with a retest of the multi-year low at $1.904 the next likely target.

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