Key Points
- Traders anticipate a 55 Bcf inventory build, significantly above average, which could push the storage surplus toward 100 Bcf.
- Despite oversold technicals suggesting a potential short-covering bounce, the overall trend remains bearish unless key resistance levels are breached.
- Natural gas futures have seen slight increases due to short-covering, but bearish pressures persist ahead of the EIA storage report.
Current Market Conditions
As of early Thursday, May Nymex Natural Gas prices have edged slightly higher. However, this uptick should be viewed cautiously, as five consecutive losses have driven prices to a 17-month low. The current movement appears to be a result of short-covering in anticipation of the EIA weekly storage report scheduled for 14:30 GMT.
Technical Analysis
The prevailing trend in the natural gas market is downward, as indicated by three key metrics: the main swing chart, a steep downtrend line, and the 50-day moving average. Unless the market convincingly breaks above the 50-day moving average, the sentiment will likely remain in a "sell the rally" mode.
Minor resistance levels to watch include this week’s high at $2.723, trend line resistance at $2.858, the main swing top at $2.888, and the 50-day moving average at $2.961. Any significant short-covering rally would need to overcome these resistance levels.
Storage Report Expectations
Market participants are closely monitoring the upcoming EIA storage report, with expectations for a storage injection of around 55 Bcf, which is well above the five-year average. Such an injection would push the surplus close to 100 Bcf, providing further justification for sellers to maintain their positions in the market.
Bearish Fundamentals
The primary reason for the bearish outlook is the high production levels, currently near record highs at approximately 109.6 Bcf per day. Additionally, mild spring weather across much of the United States has kept heating demand low, allowing for increased storage. Forecasts indicate above-normal temperatures through late April, further dampening demand. Moreover, LNG export flows have decreased slightly, and electricity generation is showing short-term weakness, contributing to a negative demand outlook.
Future Outlook
While the current market is dominated by bearish sentiment, there are potential supportive factors that could emerge later in the year. Global LNG supply risks are increasing due to damage to export infrastructure overseas, which has reduced flows to Europe and Asia. Additionally, hotter summer weather is expected to boost cooling demand, and stronger LNG demand in the latter half of the year could help tighten the market balance. However, these factors are not immediate, and for now, the bearish trend is expected to continue, particularly in light of the upcoming storage report.