Natural Gas News: EIA to Report 29 Bcf Weekly Storage Build

Market Trends and Production

Natural gas futures have been on a downward trend this week, pressured by rising production and cooler mid-July forecasts. These factors are contributing to a loosening of market fundamentals, with production climbing above 102 Bcf/d, signaling ample supply. Additionally, the market is in a position to post its seventh straight losing session.

At 14:22 GMT, natural gas futures are trading $2.444, up $0.009 or +0.37%.

Inventory Levels

Despite recent heatwaves driving higher electricity demand, US natural gas inventories remain significantly above normal. As of June 21, working inventories were 568 bcf (22%) above the prior 10-year seasonal average. This persistent high inventory level is challenging the bullish case for substantial inventory reductions this summer.

Market Response

In response to the market conditions, hedge funds and money managers have slightly reduced their bullish positions, selling the equivalent of 79 billion cubic feet in major futures and options contracts. Consequently, futures prices for August 2024 delivery have retreated to $2.41 from a recent high of $3.19.

Storage and Demand

Traders are closely watching the latest government storage report, with predictions of a 29 Bcf build in last week’s storage supply, lower than the previous week’s 52 Bcf build. This relatively low number reflects high demand during the recent heat wave. However, while strong demand is expected over the next 15 days, it may not be sufficient to reduce surpluses at a pace satisfactory to major market players.

Weather and Environmental Factors

The formation of the earliest Category 5 hurricane on record has stoked storm fears, potentially impacting demand outlooks. As a result, August Nymex natural gas futures have extended losses, with weather forecasts softening heat predictions for later in July. Most hurricanes take out the electrical power, which tends to lead to low natural gas demand from power plants.

Short-term Outlook

The short-term outlook for natural gas appears bearish based on the confluence of factors mentioned above. The market weakness is primarily driven by overproduction, with rising production levels above 102 Bcf/d outpacing demand and leading to a supply glut. Significantly above-average storage levels are pressuring prices and reducing the urgency for buyers.

Cooling weather forecasts, with softer heat predictions for late July, suggest potentially lower demand, further weakening the market. The reduction in bullish positions by hedge funds and money managers indicates a shift in market sentiment.

Despite recent heat waves, demand is not increasing enough to meaningfully reduce the supply surplus. These factors collectively contribute to a bearish outlook, suggesting continued downward pressure on natural gas prices unless a significant shift in fundamentals occurs.

Technical Analysis

The prolonged move down in terms of price and time in the natural gas market points toward severe selling pressure. Nonetheless, the market has entered the window of time for a closing price reversal bottom, so short-sellers should be on alert for a potential turnaround. The move is not likely to lead to a change in the trend, but will be designed to alleviate some of the downside pressure.