Natural Gas News: $2.00 Level Under Siege as Bearish Trend Persists

Natural Gas Futures Slip as Supply Surplus Overshadows Heat Wave

Natural gas futures continued their downward trend on Tuesday, with traders grappling over the significance of the $2.00 price level. The market faces conflicting forces of record-breaking heat and persistent supply surpluses, creating a complex trading environment.

At 12:18 GMT, Natural Gas Futures are trading $2.000, down $0.036 or -1.77%.

Heat Wave Fails to Bolster Prices

Despite one of the hottest starts to August on record, September 2024 natural gas prices closed lower for the fifth consecutive session on Monday. Weather forecasts predict near-record heat and cooling degree days (CDDs) for much of the next 10 days, typically a bullish factor for natural gas demand. NatGasWeather reports that hot high pressure will dominate most of the U.S., with highs ranging from the upper 80s to 100s, driving strong national demand.

Supply Surplus Weighs on Market

The primary reason for the summer sell-off is the hefty supply surplus, which isn’t declining at the pace the market anticipated. U.S. natural gas production has held steady at 102 Bcf/d, contributing to a storage surplus of 16% above the five-year average. This oversupply situation continues to pressure prices despite the increased cooling demand.

Production Gains and Job Losses

While the national rig count has decreased by 14%, rig productivity has surged by 20%, leading to lower prices. This increased efficiency has resulted in 2,000 job losses in Texas’ upstream oil and natural gas sector in June. The industry is adapting to do more with less, which is impacting both employment and market trends.

LNG Developments and Exports

Texas LNG, a Glenfarne Energy Transition subsidiary, has finalized a major tolling agreement for 50% of its future terminal’s LNG capacity. This move, along with previous agreements, is set to enhance future export capacity. LNG exports have shown strength, with 21 vessels departing U.S. ports between July 18 and 24, carrying 79 billion cubic feet of LNG.

Market Forecast

The short-term outlook for natural gas remains bearish. Despite forecasts of increased demand due to August heat, the persistent supply surplus continues to exert downward pressure on prices. The market will be closely watching storage injection rates and any potential shifts in production levels.

Traders should monitor the $2.00 price level as a potential support or breakdown point. If this level fails to hold, it could open the door to further price declines. However, the upcoming heat wave may provide some temporary price support if it significantly impacts storage injections. The interplay between weather-driven demand and robust supply will likely determine price movements in the coming weeks.

U.S. natural gas futures are posting their sixth straight lower-lower on the daily chart on Tuesday. The market also crossed to the weakside of the psychological support at $2.00 without much fanfare. However, that doesn’t mean it’s not coming later this session or this week. The next major downside target is $1.907.

Although some technicians see the market as “oversold” because of some oscillator, the natural gas market doesn’t work that way. It will reverse course when it runs out of sellers alright, but not because of a technical indicator, but a fundamental event. So more than any other market, “technically oversold” when applied to natural gas is merely a coincidental indicator. In other words, the technical indicator will prove to be correct after the market reveses.

On the upside, although a closing price reversal bottom may occur, it will likely be formed by massive short-covering. Until an elongated support base forms, it’s very dangerous to try to pick a bottom. If you lean toward long then wait for a bottom then buy the confirmation. Remember in soccer, steady the ball then kick it. It’s hard to kick a moving ball. The same goes with natty gas. Wait for it to stop going down before getting in on the long side.