Natural Gas News: Bearish Outlook as Tech Traders React to ‘Oversold’ Conditions

U.S. Natural Gas Market Review

U.S. natural gas futures demonstrated stability on Friday, indicating a market caught between contrasting fundamental and technical factors. Recent sessions have seen a balance of bearish fundamentals against technical traders aiming to capitalize on oversold conditions.

At 13:17 GMT, natural gas futures are trading $1.847, down $0.013 or -0.70%.

Storage Data and Price Trends

Thursday’s session revealed a storage withdrawal larger than anticipated, briefly injecting bullish sentiment into the market. Nevertheless, this was insufficient to overturn the trend of a fourth consecutive monthly fall. Despite a 7% price increase on Wednesday, natural gas prices are heading towards a decline of more than 10% this month, the longest period of consecutive monthly declines since March 2020. This trend is attributed to a mild winter leading to higher-than-normal stockpiles and uninterrupted production levels, despite a brief disruption in January.

Production and Consumption Analysis

February’s production in the U.S. Lower 48 states reached an average of 105 billion cubic feet per day (bcfd), slightly below December’s record high. The market’s initial response to the unanticipated storage withdrawal was bullish, but this was quickly tempered by an oversupplied market and lack of continued buying interest. Future weather conditions will be critical in shaping demand, with an expected natural decrease in withdrawals as spring approaches.

European LNG Market Context

In 2023, the U.S. maintained its position as the principal supplier of liquefied natural gas (LNG) to Europe. Europe’s LNG import capacity is expected to increase, driven by efforts to diversify energy sources following Russia’s Ukraine incursion. Despite capacity expansions and record LNG imports, Europe’s mild winter resulted in high natural gas storage levels, reducing demand and influencing prices.

Short-Term Market Outlook

Considering the present market conditions, the short-term forecast for U.S. natural gas prices tends towards a bearish direction. The combination of ample storage, steady production, and moderate weather conditions restricts the likelihood of significant price increases. As the heating season progresses, reduced demand is anticipated, likely leading to a surplus in storage. Traders should adopt a cautious approach, closely monitoring weather forecasts and storage data for signs of market changes.

Technical Analysis

Nearby natural gas futures are exhibiting consolidation after the rollover earlier in the week. This chart suggests a potentially bullish tone is developing with traders eyeing a quick surge into the 50-day moving average resistance at $2.080.

While technical traders continue to build a case for a rally due to oversold conditions, bearish fundamental traders continue to wait for counter-trend rallies to short.