Natural Gas News: Counter-Trend Rally Stalls After Bearish EIA Storage Report

Natural Gas Futures Edge Higher Despite Bearish EIA Storage Report

Natural gas futures traded higher on Thursday, although prices retreated from the session high following a bearish weekly storage report. Futures hit a high of $2.452 before declining to $2.396 after the U.S. Energy Information Administration (EIA) reported a larger-than-expected increase in gas inventories. Despite the pullback, the market maintained support above $2.373. The overall trend remains bearish, but prices have found support at $2.210, slightly above the recent bottom of $2.201.

On the technical front, resistance is expected in the $2.510 to $2.610 range, which includes the 50-day moving average at $2.536.

At 15:16 GMT, Natural Gas Futures are trading $2.414, up $0.072 or +3.07%.

EIA Report and Storage Impact

The latest EIA report revealed that working gas in storage reached 3,785 billion cubic feet (Bcf) as of October 18, 2024, reflecting an 80 Bcf increase from the prior week.

This is 106 Bcf higher than last year and 167 Bcf above the five-year average of 3,618 Bcf. The rise in inventories came in above pre-report estimates, which ranged from 56 to 66 Bcf, leading to downward pressure on prices.

While this storage increase signals potential oversupply, market support remains, largely due to traders pricing in expectations of a warm winter. Mild demand in key heating regions and a well-supplied storage situation continue to weigh on the market’s upside potential.

Market Neutrality Amid Winter Concerns

The warmer-than-usual winter forecast is dampening the risk premium for winter gas prices. Winter 2024-2025 contracts have dropped from $3.34 to $2.80 in just two weeks. AEGIS Hedging notes that while winter gas prices could still climb above $2.80, the firm maintains a neutral outlook for the season.

As the market digests weather forecasts and demand expectations, volatility may persist, particularly with mixed temperature trends across the U.S. While colder conditions are expected in the Northeast, much of the country will experience milder weather, further reducing demand for heating.

Shale Gas Production and Its Impact

U.S. shale gas production, which accounts for 79% of dry natural gas output, has seen a modest decline in 2024. According to EIA data, production dropped 1% year-to-date, led by declines in the Haynesville and Utica plays. However, Permian basin production continues to rise, driven by associated gas from oil wells.

The broader production slowdown has been attributed to low Henry Hub natural gas prices, which averaged just $2.10/MMBtu in 2024, down from $6.89/MMBtu in 2022. This price collapse has led to rig count reductions, particularly in the Haynesville, where the number of active rigs has fallen by 53% since January 2023.

Market Forecast

In the short term, natural gas prices are likely to remain under pressure due to robust storage levels and weaker-than-expected seasonal demand. The market is in a bearish mode with potential downward tests towards the $2.20 support level.

However, any unforeseen cold weather or supply disruptions could provide temporary bullish momentum. For now, traders should remain cautious as fundamentals point to limited upside risk.