Natural Gas Futures Plunge as Supply Concerns Weigh on Prices
U.S. natural gas prices continued their downward spiral on Friday, following a sharp decline in the previous session. The market is reacting to a bearish storage report and weak seasonal demand, with futures dipping below critical support levels. The September Nymex natural gas futures contract was hit hard on Thursday, reflecting traders’ concerns about ample supply and waning cooling demand as the summer season winds down.
At 11:53 GMT, Natural Gas Futures are trading $2.023, down $0.030 or -1.46%.
Bearish Storage Report Sparks Sell-Off
The Energy Information Administration (EIA) reported a 35 billion cubic feet (Bcf) injection into natural gas storage for the week ending August 16, surpassing market expectations of a 26 Bcf build. This larger-than-expected increase in storage, combined with the upcoming shoulder season, has intensified fears of a supply glut. As a result, natural gas futures dropped significantly, with traders increasingly bearish on the market’s prospects.
As of the latest EIA report, working gas in storage stands at 3,299 Bcf, which is 221 Bcf higher than the same time last year and 369 Bcf above the five-year average of 2,930 Bcf. The significant surplus in storage levels has heightened concerns that there will be more than enough natural gas available as the winter heating season approaches, further pressuring prices.
Mild Weather Dampens Demand
In addition to the bearish storage data, mild weather across key regions of the U.S. is reducing demand for natural gas. The NatGasWeather forecast indicates that while the western, central, and southern parts of the country are experiencing strong demand due to high temperatures, the Great Lakes, Ohio Valley, Northeast, and Mid-Atlantic regions are seeing cooler temperatures, which is reducing the overall need for cooling and, consequently, natural gas.
Despite a forecasted increase in demand as hot weather spreads across the southern two-thirds of the U.S. into next week, the current mild conditions in the northern regions are keeping pressure on prices. Analysts note that without a significant shift in weather patterns or a production cut, the market will likely remain under bearish influence.
Technical Analysis Points to Further Downside
From a technical perspective, natural gas prices are at risk of further declines. The market is currently trading below two key pivot points at $2.091 and $2.149, which could lead to increased selling pressure. Bears are targeting the $1.907 to $1.882 range, a level that could be tested if bearish sentiment persists.
To reverse the current downtrend, prices would need to break above the 50-day moving average at $2.347, a level that also coincides with resistance near $2.301 and $2.315. However, given the current market fundamentals, a bullish reversal appears unlikely in the near term.
Market Outlook: Bearish
Given the larger-than-expected storage build, mild weather conditions, and the looming end of the summer season, the natural gas market is poised for continued weakness. Unless there is a significant reduction in production or an unexpected surge in demand, prices are likely to remain under pressure with a bearish outlook prevailing.
