Natural Gas Prices Face More Selling Pressure as Temperatures Rise
Natural Gas Prices Face More Selling Pressure as Temperatures Rise
- Natural gas futures dropped on Wednesday as traders expect warm weather throughout the rest of February.
- Winter heating season is ending, putting downward pressure on prices.
- Technical posture for natural gas prices points to more potential downside.
Natural gas prices drop as warm weather outlook weighs on sentiment
Natural gas futures (/NGH6) were nearly unchanged through afternoon trading on Wednesday, February 18. Earlier in the day, prices fell to an intraday low of 2.922. That put prices at the lowest level since January 20, and down over 30% since their January high.
Traders are selling natural gas as warmer-than-average weather blankets much of the Midwest and East Coast, where demand for the commodity is concentrated. The high temperatures are expected to continue through the rest of the month and expand into the Southern and Western United States.
The resulting warm weather over the next several weeks will likely reverse the inventory withdrawals we’ve seen recently. We saw a 249 billion cubic foot (Bcf) withdrawal from inventory in the Energy Information Administration’s latest report released last Thursday. That brought stock levels below the five-year average of 2,344 Bcf.
The week before (for the week ending January 30), we saw an even bigger 360 Bcf withdrawal, which was the largest on record. The large inventory draws we’ve seen over the preceding two weeks are likely to reverse course. The market is already reflecting that.
So, now we must try to predict where the natural gas market can go next. But time is running out for another large withdrawal in natural gas inventories. The withdrawal season typically ends once April starts, when milder temperatures reduce heating demand.
That said, we’ll need a late season cold snap, and likely one that is severe, because inventories will undoubtedly slow and may even build over the coming weeks.
Natural gas technical outlook
Natural gas prices have moved lower alongside downward trending exponential moving averages (EMAs), particularly the 9-day EMA. Support from the December swing low at 3.007 gave way on Tuesday, removing a potential barrier for bears. The January swing low 2.578 is in focus after the 3 psychological level was breached in yesterday’s session as well. A technical bounce may face resistance from the EMAs, but a fundamental shift is likely required over the short term to sustain any technical momentum.
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