Natural Gas News: Traders Eye EIA Report Amid Bearish Market Sentiment

Natural Gas Futures Inch Higher Ahead of EIA Report

U.S. natural gas futures are trading nearly flat on Thursday, with traders focusing on the upcoming U.S. Energy Information Administration (EIA) weekly storage report, set to be released at 12:30 GMT. The choppy trade is being influenced by oversold conditions, along with profit-taking and short-covering ahead of the report. While Wednesday’s closing price reversal bottom offers a potentially bullish signal, any sustained rally is likely to be constrained by the market’s overwhelmingly bearish fundamentals.

At 10:58 GMT, Natural Gas futures are trading $2.091, down $0.006 or -0.29%.

EIA Storage Report Expectations

Market participants are closely watching the EIA report, with survey averages predicting a storage build between 34-39 billion cubic feet (Bcf), with 39 Bcf being the most prominent estimate. This expectation is slightly below the five-year average build of 43 Bcf, due to cooler-than-normal temperatures in much of the eastern U.S. and high heat across Texas. A build within this range would only slightly reduce the surplus, offering limited support to prices.

Weather Outlook

The weather outlook from NatGasWeather for the period of August 29 to September 4 suggests mixed demand conditions. While weather systems will bring showers and cooler temperatures to the far northern U.S., the rest of the country is expected to remain warm to hot, with highs ranging from the upper 80s to 100s. However, the extent of extreme heat is expected to diminish next week, particularly in the southern U.S. As a result, national demand is forecasted to be high through the weekend, moderating next week.

High Coal Stockpiles Exert Pressure

Adding to the bearish sentiment, high coal stockpiles are indirectly pressuring natural gas prices. Analysts at EBW Analytics have highlighted that long-term take-or-pay contracts for coal plants could lead to economically unfavorable decisions to burn coal, despite low dark spreads. This scenario poses additional risks to electricity markets and, by extension, to natural gas prices.

Market Outlook: Bearish Trend to Persist

The near-term outlook for natural gas remains bearish. With the shoulder season approaching and storage levels remaining high, prices are expected to continue struggling. The key support level is $1.882, and a break below this could trigger further declines, potentially down to $1.60 or even $1.48. While late-summer heatwaves could provide temporary price support, a significant recovery is unlikely before the winter heating season.

Traders are advised to closely monitor upcoming EIA storage reports, weather forecasts, and global demand trends for any signs of a market shift. However, the current fundamental factors suggest that the bearish trend is likely to persist.

Technical Analysis

U.S. natural gas futures formed a potentially bullish closing price reversal bottom on Wednesday at $2.021. Normally, this pattern would mark a dramatic turnaround in the market, but the lack of follow-through to the upside suggests yesterday’s chart pattern was formed by short-covering rather than aggressive counter-trend buying.

Taking out $2.140 will confirm the chart pattern. If this creates enough upside momentum then look for a possible near-term surge into the short-term pivot at $2.252. Taking out $2.021 will negate the chart pattern and signal a resumption of the downtrend with $1.882 the primary downside target.