Natural gas futures are inching lower early Thursday well ahead of today’s government storage report that could determine the near-term direction of the market.
The market is also hovering above a key retracement zone at $4.867 to $4.649 for a third session. Trader reaction to a test of this area will tell us if the buyers are still in control, or if the short-sellers have recaptured the momentum unless there is an earlier than expected cold shot or until the winter heating season begins.
At 02:26 GMT, December natural gas futures are trading $4.947, down $0.022 or -0.44%.
The mostly sideways-to-lower price action this week has been primarily fueled by two factors. Helping to keep a lid on prices are forecasts calling for weak short-term demand due to mild weather conditions. Underpinning prices and perhaps preventing a sharp break are rebounding liquefied natural gas (LNG) export volumes.
Bespoke Weather Services added that Thursday’s U.S. Energy Information Administration (EIA) storage report” is the next major data point” that could drive futures in either direction the rest of this week.
LNG Feed Gas Levels Rise ~ NGI
Natural Gas Intelligence (NGI) reported that Freeport LNG in Texas largely resolved production issues after former Hurricane Nickolas knocked out power last week. This helped to drive up LNG feed gas levels to 10 Bcf on Wednesday from around 9 Bcf earlier in the week and not far from record levels reached over the summer amid robust demand from Europe and Asia.
Supplies of gas in Europe are precariously light, galvanizing calls for Lower 48 exports to rebuild stockpiles for winter. Demand from Asia is robust and its natural gas needs appear likely to swell further following a Chinese government announcement this week that it would stop building coal-fired plants abroad.
The announcement did not specify whether the policy shift would impact China’s domestic coal projects, but analysts said it would drive up gas demand in other Asian countries.
Early Look at Thursday’s EIA Weekly Storage Report
A consensus of experts predicts Thursday’s EIA storage report for the week-ending September 17 will show a build between the mid-70s to low 80s Bcf.
NGI reported that a Reuters survey ranged from injections of 58 Bcf to 82 Bcf, with a median build of 76 Bcf. Bespoke predicted a 75 Bcf increase. NGI’s model called for an 82 Bcf injection.
Last year, the EIA recorded a 70 Bcf injection for the similar week, while the five-year average injection is 74 Bcf.
A bearish EIA report should drive prices into the technical retracement zone at $4.867 to $4.649. Trader reaction to this move will determine the near-term direction of the market.
Ahead of the report, the $4.867 to $4.649 retracement zone represents value. But that’s given the current fundamentals.
Traders betting on strong near-term weather demand as well as increased LNG exports will probably buy the break into this area. Those traders betting on lower demand until the start of the winter heating season will likely drive prices through the support at $4.649, in search of better value.