Natural Gas News: Prices Dip Ahead of EIA Storage Report

U.S. Natural Gas Market Update

U.S. natural gas prices are putting in a mixed performance on Thursday, with the market eyeing the upcoming Energy Information Administration (EIA) weekly storage report, due to be released at 14:30 GMT, expected to post an 87 billion cubic feet (Bcf) increase in inventories. This anticipation reflects a broader concern over plentiful gas supplies despite a recent dip in production levels.

At 12:28 GMT, Natural Gas Futures are trading $2.165, down $0.022 or -1.01%.

Price Trends

Natural gas futures experienced a downturn yesterday, halting a potential fifth consecutive session of gains. On Wednesday, prices retracted from a 3-1/2 month high as traders engaged in profit-taking, ultimately closing the day with moderate losses. The fading rally underscores the market’s sensitivity to supply dynamics, where even significant production cuts have struggled to sustain bullish momentum.

Supply and Production Insights

The number of active U.S. natural gas drilling rigs dropped to a 2-1/2 year low, with last week’s count down three rigs, signaling a near-term reduction in production. However, the substantial existing inventories, exacerbated by a mild winter and operational adjustments at major facilities like the Freeport LNG export terminal, have capped price gains. Freeport’s partial reopening after a cold damage-induced shutdown adds another layer of complexity, with full capacity not expected until late May.

Demand Factors

Despite production challenges, demand indicators show mixed signals. U.S. electricity output increased last week, suggesting a rise in natural gas usage by utilities. Yet, the broader electricity output over the past year indicates a nearly flat trend, hinting at an uncertain trajectory for sustained demand growth.

Short-Term Forecast

In the short term, natural gas markets appear bearish, driven by robust supply levels and uneven demand signals. Today’s EIA report, if aligning with or exceeding the anticipated inventory build, could further pressure prices downward, maintaining the trend of ample supplies overshadowing production declines.

Unless natural gas futures can sustain a rally above the intermediate trend indicator or 50-day moving average, the market is likely to remain in “sell the rally” mode as demonstrated by Wednesday’s price action.

Natural gas futures are posting two-sided price action early Thursday, while straddling the 50-day moving average at $2.174. The choppy price action suggests this intermediate-trend indicator will be the key factor in determing whether this week’s rally continues, or if near-term weakness prevails.

Besides the 50-day MA, traders are also eyeing the April 10 top at $2.291 as a potential triggerpoint for an upside breakout.

Crossing to the weakside of the 50-day MA with strong volume could spike prices into $2.092, which would complete a 50% retracement of the rally from $1.909 to $2.274.