Natural Gas Prices Drop After EIA Reports a Larger-Than-Expected Inventory
Natural Gas Prices Drop After EIA Reports a Larger-Than-Expected Inventory
Bulls are hoping greater demand for cooling after a modest shoulder season
- Natural gas prices dropped after the EIA reported larger-than-expected inventory build.
- Higher prices now depend on an improved cooling season after a modest shoulder season.
- Prices are trading in the middle of the April-May range, leaving directional trades exposed.
The Energy Information Administration (EIA) released its weekly storage report for natural gas on today, and it shows working gas in storage rose 122 billion cubic feet (bcf) to 2,598 bcf as of Friday.
Forecasters expected an increase of about 110 bcf. The release also represents an gain from the previous week when storage increased 101 bcf. Working gas in storage is now 117 bcf above the five-year average of 2,481 bcf, according to the EIA.
Natural gas futures (/NGN5) traded lower in this afternoon’s trading following the release of the weekly report, dropping by about 1.6%. The upward inventory pressure suggests demand has been weak, which aligns with relatively mild weather over much of the United States over the past week.
Bulls now look for a cooling season that can deliver. Temperature forecasts over the next two weeks point to the possibility of above-average temperatures, which could help boost prices.
Meanwhile, Bloomberg data shows dry gas production in the lower 48 states was at 105 billion cubic feet per day, a drop of about 100 million cubic feet from the prior day. Meanwhile, demand for power rose about 100 million cubic feet per day over the same period. This points to a balanced market when excluding exports and imports.
Prices in Europe have risen over the past couple of days but they remain lower from last week. Maintenance in Norway — one of Europe’s top gas suppliers — has taken a toll on supply. This could put more demand on U.S. exports over the next several weeks. Demand in Asia currently remains tepid.
Trading natural gas
Natural gas prices are trading in the middle of its range carved out from the April swing low to the May swing high. Support has been found at the 78.6% Fibonacci retracement level from the May highs. That said, taking a directional position at the current level leaves traders exposed to directional bias on both sides. Bulls looking to enter a position may have better luck waiting for prices to fall back near the 3.4 level before getting long. Alternatively, the risk-to-reward for a long trade doesn’t look too enticing at the current levels, either.
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Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
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