Natural gas futures closed marginally higher last week despite a government report showing a bigger-than-expected weekly injection for the week-ending August 24. Traders said the move was likely fueled by storage build concerns ahead of the withdrawal season.
Last week, October Natural Gas futures settled at $2.916, up $0.003 or +0.10%.
Short-sellers started to cover on August 29 at $2.830, leading to a technical reversal to the upside. The buying continued to strengthen for the next two days, driving the market to $2.931 ahead of the long U.S. holiday week-end.
The $0.101 jump was a pretty good indication that buyers are willing to defend the market against a substantial break ahead of the beginning of the winter heating season. The buying was likely fueled by the thought that the winter will begin with a significant deficit.
U.S. Energy Information Administration (EIA) Weekly Storage Report
On Thursday, August 30, the U.S. Energy Information Administration (EIA) reported a 70 Bcf injection into storage inventories for the week-ending August 24, well above the market consensus of a 65 Bcf build. The 70 Bcf build was significantly larger than both last year’s 32 Bcf build for the week, and the five-year average injection of 59 Bcf.
Working gas in storage was 2,505 Bcf as of August 24, according to EIA estimates. Stocks were 646 Bcf less than last year at this time and 588 Bcf below the five-year average of 3,093 Bcf.
Furthermore, the EIA reported a build of 35 Bcf in the Midwest, 27 Bcf in the East, 4 Bcf in the Mountain, and 2 Bcf in the Pacific and South Central regions.
Last week’s recovery and small gain came despite lower temperatures dampening demand. According to S&P Global Platts Analytics, estimated total U.S. demand dropped by 2 Bcf to 77.1 Bcf late in the week. Demand is estimated to average 79.2 Bcf/d over the next seven days.
Platts also said that much of the demand decline was due to a drop in the power burn in the Northeast and the Southeast region as temperatures return to normal from the extremes seen earlier in the week. Power burn demand is projected to pick up and average 36.1 Bcf/d over the next seven days.
Short-Term Weather Forecast
According to NatGasWeather.com for the period September 2 to September 6, “Hot high pressure will build back across the northern and eastern U.S. late this weekend through this week with highs back into the mid-80s to 90s for another swing to strong national demand. Cooler exceptions this week will be the Northwest.”
Technically, the main range is $2.688 to $2.979. Its retracement zone at $2.833 to $2.799 is the major support. The intermediate range is $2.751 to $2.979. Its retracement zone at $2.865 to $2.838 is additional support. Combining the two retracement zones creates a support cluster at $2.838 to $2.833. This area essentially provided support last week when buyers stopped the sell-off at $2.830.
The short-term range is $2.974 to $2.830. Its retracement zone at $2.902 to $2.919 was tested on Friday. Trader reaction to this zone should determine the direction of the natural gas market this week.