Natural Gas News: Traders Anticipate Heat-Driven Test of 200-Day Moving Average

Natural Gas Futures Edge Higher on Bullish Market Sentiment

Natural gas futures are trending higher on Monday, approaching the critical 200-day moving average, a key indicator for long-term trends. Bullish momentum persists as recent inventory data suggests tight supplies ahead of the peak summer season.

At 12:45 GMT, Natural Gas futures are trading $2.676, up $0.05 or +1.90%.

Weather Patterns and Impact

According to NatGasWeather, Texas is expected to experience extreme heat on Monday and Tuesday, with temperatures reaching the 90s to 100s. A weather system will cool the region slightly midweek, bringing temperatures down to the 80s and 90s before rising again next weekend. The southern third of the U.S. will remain warm to hot with highs in the 80s and 90s, while the northern two-thirds will see more moderate temperatures ranging from the 60s to 80s. Briefly, the Ohio Valley could experience near 90 degrees on Monday. Cooler weather, with temperatures in the 50s, is expected in the Northern Rockies due to weather systems bringing showers and thunderstorms. For the 10-15 day forecast period, the heat isn’t expected to be as intense, leading to below-normal national cooling degree days (TDDs).

Weekly Recap

Last week, natural gas futures hit their highest levels since February, driven by strong market sentiment and a balanced supply-demand outlook. Mixed cash prices and anticipated summer weather boosted demand, while pipeline maintenance offered varied support. A significant factor contributing to the bullish sentiment is the decline in domestic production. Major producers like EQT and Chesapeake Energy have slowed well completions and drilling activities due to earlier price declines, resulting in a roughly 9% production drop for 2024.

Freeport LNG and Export Dynamics

The near-complete return of the Freeport LNG plant in Texas has increased gas flows to LNG export facilities, further tightening supply. Data from LSEG indicates that gas flows to Freeport LNG’s export plant reached a five-month high following the return of a liquefaction train. U.S. gas futures at the Henry Hub benchmark have surged by about 59% over the past three weeks, partially due to increased feedgas flows to Freeport after an outage in late April.

Inventory and Production Insights

As of Friday, gas flows to the seven major U.S. LNG export plants rose to 12.7 billion cubic feet per day (bcfd) in May from 11.9 bcfd in April, with Freeport’s plant significantly contributing. June natural gas prices have gained traction, supported by an EIA report showing a smaller-than-expected inventory increase of 70 billion cubic feet for the week ending May 10, compared to a forecast of 76 bcf. Despite this, total natural gas inventories are still up 17.5% year-on-year and 30.8% above the five-year seasonal average.

Market Forecast

Given the current market conditions—reduced storage increases, lower production, and robust LNG exports—natural gas futures are likely to maintain their upward trend in the short term. However, the potential for cooler weather could temper this bullish outlook by decreasing immediate demand for natural gas. Traders should closely monitor inventory reports and weather forecasts to manage positions effectively in this volatile market.

Technical Analysis

The daily chart clearly shows that traders are driving the market into the 200-day moving average at $2.767. A test of this level will mark decision time for traders.

We could see profit-taking on the first test of this indicator, or a breakout to the upside. However, traders need to be aware of a possible bull trap. If the breakout is fueled by short-covering then it won’t last. If it is fueled by new buying then look for longs to try to establish new support at the 200-day MA. Read the order flow.