Natural gas futures rallied early Tuesday before sellers came in at an old top, forcing the market lower for the session. The market hit $2.878, an exact match with the April 26 main top. At least now we know where the sellers are.
Early Wednesday, we’re seeing some follow-through selling which could be related to position-squaring ahead of Thursday’s U.S. Energy Information Administration’s (EIA) weekly storage report.
At 0856 GMT, July Natural Gas is trading $2.836, down $0.018, or -0.63%.
We could continue to see two-sided trading today as traders sort out the fundamentals. Lingering storage deficits are underpinning prices, but a steadily rising rig count implies growth in production that could cap gains and create downside risks.
This week’s EIA storage report is expected to show a build of between 89 Bcf and 105 Bcf. I’m sure the range will tighten before Thursday’s report.
Last week, natural gas inventories continued to rebuild. The EIA report for the week-ending May 4 showed a robust 89 Bcf injection. This was higher than the 75 Bcf five-year average and the 49 Bcf prior year build.
Total working gas stocks currently sit at 1432 Bcf, still 863 Bcf below the year-ago level and 520 Bcf below the five-year average of 1952 Bcf.
We continue to look for the possibility of a two-sided trade because projected warm weather suggests low heating demand, but the building of cooling demand, could have a mixed impact on the rate of subsequent storage injections.
And speaking of the weather, warmer temperatures during the week ended May 9 drove a 14% increase in power burn week on week but also a 37% drop in residential/commercial-sector demand, according to the EIA’s latest Natural Gas Weekly Update. Additionally, the report showed total U.S. gas consumption was down 4% on the week.
Finally, the warmer weather is coming. According to midrange National Weather Service outlooks, traders should expect to see above-average temperatures over nearly the entire country through both the upcoming six-to-10-day and eight-to-14-day periods, while the longer range projection from AccuWeather calls for warmer-than-normal weather over a large part of the U.S. for April through June.
The charts indicate a sideways-to-lower but volatile trade unless we see a sustained move over $2.878.